Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) have been approved by the People’s Bank of China as market makers for the direct trading of the currencies, Gillard said at a press conference in Shanghai today.
“This will be a huge advantage for Australia, not only for our big businesses, but also for our small and medium enterprises that want to do business here,” Gillard said. A formal announcement of the plan, which will see Australia’s dollar become the third major currency allowed to have direct trading links with the yuan, will be made tomorrow, she said.
China remained Australia’s top trading partner in February, with transactions at A$9.7 billion ($10.1 billion), according to the bureau of statistics. Asia’s largest economy took about a third of the nation’s exports that month and is the major customer for iron ore and coal.
The PBOC announces a daily reference rate for the yuan against the Australian dollar at around 9:15 a.m. in Shanghai on each trading day, based on market-maker prices. Direct trading means the fixing will be computed without involving a cross rate with the dollar.
Direct trading will lower customers’ costs by “a few basis points,” ANZ Chief Executive Officer Mike Smith, said at the press conference in Shanghai today.
“The effect is the convenience of being able to do this,” he said. “For example, in a trade document, rather than going through the U.S. dollar and having the movement of the currency over time, you can immediately lock in the exchange rate.”
The yuan gained 0.08 percent to 6.4379 per Australian dollar as of 11:03 a.m. in Hong Kong, according to data compiled by Bloomberg. It touched 6.4228 earlier, the strongest level since March 14. The central bank raised the yuan’s reference rate against the Australian dollar by 0.78 percent today to 6.4984, the biggest gain since Feb. 21.
The Australian dollar follows the greenback and the yen in being able to be directly traded with the yuan.
“Direct trading is likely to lead to narrower bid-ask spreads and lower costs for customers,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “We do not expect a lot of foreign-exchange trading volumes as most flows are still settled in the U.S. dollar, but the announcement represents an important move in collaboration between the two countries and in the development of offshore markets.”
Chinese Premier Li Keqiang took office last month and retained Zhou Xiaochuan as central bank governor, a vote of confidence in policies that include promoting the usage of yuan in global trade and finance. Zhou is seeking to reduce reliance on the dollar, as China has accumulated $3.3 trillion of foreign-exchange reserves, the world’s largest stockpile.
The yuan climbed to a 19-year high 6.1986 against the greenback on April 2, prices from the China Foreign Exchange Trade System show. It was the 14th most-used currency in global payments in February, according to the Society for Worldwide Interbank Financial Telecommunication, surpassing the Russian ruble the previous month. It had a 0.6 percent share, figures from the financial messaging platform show.
Taiwanese banks started accepting yuan deposits in February, while authorities in Beijing appointed Industrial & Commercial Bank of China (601398) Ltd. as the yuan clearing bank in Singapore. Bank of England said it has the inside edge to be the first Group of Seven nation to sign a currency-swap agreement with China after a meeting in February.
The yuan-Aussie direct trading is “an important step in the process of internationalizing the renminbi,” Neville Power, chief executive officer of Perth-based Fortescue Metals Group Ltd. (FMG), said in an interview on Bloomberg TV today. “Going forward I see more opportunities to do direct trading in the renminbi,” he said.
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