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Beyond the Bale : June 2019
60 MARKET INTELLIGENCE Amidst all the turmoil created by major global trade issues such as the two-month ban on imports of South African wool into China, followed by the sudden reversal of that ban, and the re-emergence of the USA-China tariff war, a devaluing of the Chinese Yuan (CNY) against the US dollar (USD) has also been occurring for the past year and more. Marked and significant fluctuations in all the foreign exchange (forex) cross rates used in the wool trade with China has been the norm. Over the past 12 months, the CNY has weakened to the current level of CNY 6.9179 In this article, we examine the marked and significant fluctuations in the foreign exchange (forex) cross rates used in the wool trade. AND IMPLICATIONS FOREX EFFECTS against the USD compared to CNY 6.3675 back in May 2018. This means China’s exported product is worth 8.64% less in CNY if sold at a similar same price to 12 months ago, which is almost certainly a ‘best case’ scenario given the tough trade conditions of the period. Concurrently the Australian dollar (AUD) has fallen from the May 2018 average of around 0.7576 against the USD to today’s rate of 0.6868 – a 9.35% drop. So, in net terms, the Chinese are still a little ahead in terms of the using CNY to buy USD then using that USD to buy AUD to pay for greasy wool. This cross rate situation has helped in maintaining the relatively stable wool market at relatively high price levels under the softening of the retail price and demand scenario of the past 12 months which saw the market peak in August 2018 at 2116ac EMI. Most foreign textile trade companies express opinions that a stable exchange rate is best for profits across the industry, but at present the cross rates favour slightly a vertical Chinese wool manufacturer paying in USD and getting paid in USD or the equivalent for their end product. , 5.00% -5.00% 0.00% Jul Sep Nov Jan Mar May CNY:CUR 8.37% AUD:CUR -9.42% 5/17 FIGURE 1: EXCHANGE RATE OF CHINESE YUAN (CNY) AGAINST THE US DOLLAR INDEX (BLACK LINE) AND AUSTRALIAN DOLLAR (AUD) AGAINST THE US DOLLAR INDEX (ORANGE LINE) DURING THE PAST 12 MONTHS.