Hopes for a solid resumption for the Australian wool market after the three-week recess were dashed by the unexpected ramping up of the US-China trade war. Wool prices fell sharply almost across the board, despite a relatively low wool offering for sale and with 28.6% passed-in (the highest rate in over a decade according to AWEX). The news dominating the wool market (as well as dominating the world equity and commodity markets in general) was the increased trade tensions between the US and China. On 1st August, President Trump announced that his administration would impose a new 10% import duty on the remaining imported products from China that have not had higher tariffs imposed in the past nine months. These new import duties on these remaining products would begin in September. These additional products would include imported clothing (including wool clothing) from China, which is the first time these higher duties have directly affected products made from Australian wool. This will be making mills in China a rather nervous.
Seemingly in response to this threat, the Chinese Government allowed the Chinese Renminbi to depreciate against the US$ to above the 7:1 mark. This is the first time the Renminbi has been above the 7RMB to 1US$ level since 2008. Until this week, the Chinese Government had been propping the Renminbi up. Note that the depreciation of the Renminbi was not forced by the Chinese Government, but was actually the result of market forces after the Government removed its support. Fears of a currency war, in addition to a trade war, swept the world markets. This has added to the already subdued demand conditions for wool, notably among Chinese mills, and has been the key factor in the fall in wool prices this week.
Further details including a chart showing the trends in the Chinese Renminbi against both the US$ and A$ are provided in the full edition of the NCWSBA Weekly Newsletter. Available to NCWSBA members.