Imagine you have low magic, low tech nomads with a magical equivalent of microscopes, and a rudimentary understanding of genetics and optics (blame magic). They are selectively breeding livestock for nearly half a million years, and will covet any with unique wool.

There are two different ways I can imagine this maybe working, but perhaps you can think of others:

• Firstly you could have hollow hair with a central cavity, or a wall thickness just the right size to cause optical interference.
• Secondly you could have the scales on the hairs themselves in a spacing which causes optical interference.

Is it actually plausible that you could get structural color evolving in mammals wool? If so, could it replicate anything structural coloration can do in birds? Or would structurally colored hair be limited in what optical effects and/or colors it could produce?

There should be no genetic engineering involved beyond selective breeding.