Market leaps to four-month high

Strong demand for wool gave the AWEX Eastern Market Indicator (EMI) its biggest lift in more than four months last week.

The EMI finished 50 cents higher, climbing 4.4 per cent to close at 1243c/kg clean.

The weekly offering of 42,907 bales found good support with 40,163 cleared to the trade.

Australian Wool Industries Secretariat's Peter Morgan said the rise in the EMI in $A was achieved in spite of a further, but more moderate, increase in the US exchange rate.

"The EMI moved up by US64c, taking the lift in US terms to 165c since the last sale before the Christmas break," Dr Morgan said. "The EMI in US terms closed at 1343c/kg clean, its highest level since early September but below the peak of 1515c in late June."

Dr Morgan said the upward movement of the US exchange rate, again breaking the 108c barrier, was probably influenced by the Reserve Bank's decision to leave the official cash rate unchanged at 4.25 per cent.

He said the rise brought out various experts' predictions on where the US exchange rate would peak.

"The Australian newspaper quoted a tip of 120c during the week," he said.

Wherever the US exchange rate climbs to, wool supply will be very tight at least over the first six months of the year, according to the Landmark Wool Weekly Report.

"Even though wool supply from Australia lifted, lower production in the other four exporting countries has remained very low," Landmark said.

"Wool production in Australia was 345mkg greasy in 2010-11, virtually the same as the year before, which was the lowest level since the 1920s."

The report said wool supply increased by 7 per cent due to sales from stocks held on-farm and in brokers' stores.

Dr Morgan said the year-to-date offering is 41,998 bales less (-3.5 per cent) than at the end of the same week last year.

"It would not surprise me if this week's market flushed out some wool on hold and some previously passed-in wool," he said.

There are 47,651 bales rostered for this week's sale.

Estimates for the following two sales are 43,670 and 41,400, respectively, a decrease of 5.4 per cent over the three-week period when compared to last year.

This week also begins with a national four-week trial to conduct sales earlier in the week.

Sales during this period will start on Tuesday, regardless of whether a sale requires one, two or three selling days which is determined by volume.

AWEX said the purpose of the trial was to examine what costs and or benefits would arise from trading earlier in the sale week.