Yuan-Aussie Transactions to Start as HSBC Joins Market

HSBC Holdings Plc starts direct trading between the yuan and Australia’s dollar today, joining two other banks in getting approvals from China as market makers.

China, Australia’s top trading partner, will start direct trading between the nations’ currencies, Australian Prime Minister Julia Gillard announced April 8 in Shanghai during an official visit. The People’s Bank of China approved Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. as market makers for such transactions, she said.

The Australian dollar becomes the third major currency allowed to have direct trading links with the yuan after the greenback and Japan’s yen. Chinese Premier Li Keqiang took office last month and retained central bank governor Zhou Xiaochuan, who has been seeking to reduce the country’s reliance on the dollar. China has accumulated $3.3 trillion of foreign-exchange reserves, the world’s largest stockpile.

This is a “significant step forward in supporting the growing demand for RMB for payments, settlement and financing globally,” said Tony Cripps, chief executive officer of HSBC’s Australia unit, according to a statement from the company released yesterday. “Greater RMB turnover and liquidity will ultimately make exchange-rate transactions for businesses and investors from both countries easier.” RMB, or renminbi, is the official Chinese name for the currency.

Fixing Weakened

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. The rate was set at 6.54 per Australian dollar today, compared with 6.5314 yesterday, according to the China Foreign Exchange Trade System. Direct trading means the fixing will be computed without involving a cross rate with the U.S. dollar.

China remained Australia’s top trading partner in February, with transactions at A$9.7 billion ($10.2 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. China reported a March trade deficit of $880 million today, compared with the median estimate in a Bloomberg survey for a $15.2 billion surplus. Imports climbed by an above-forecast 14.1 percent, the customs administration said in Beijing.

“For China, the interest for having direct trading with the Aussie is very much tied up with the desire to have commodity pricing other than the dollar,” said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. “From the Chinese perspective, it’s always great to have one more potential offshore pool of yuan liquidity. But I’m very interested to see how Australian companies will go in terms of adoption.”

19-Year High

China’s yuan was the 14th most-used currency in global payments in February, according to the Society for Worldwide Interbank Financial Telecommunication. It had a 0.6 percent share, figures from the financial messaging platform show. Australia ranked sixth out of 136 countries in terms of settling payments in the Chinese currency, SWIFT said.

The yuan has weakened 0.7 percent this year against the Australian dollar, according to data compiled by Bloomberg. The Chinese currency advanced to a 19-year high of 6.1941 against the greenback today in Shanghai.

Taiwanese banks started accepting yuan deposits in February, while authorities in Beijing appointed Industrial & Commercial Bank of China 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.

Offshore Hubs

“With PBOC moving to set up offshore yuan trading centers beyond Hong Kong, with London, Taiwan, and Singapore thought to be next in line, one could make the case that Sydney should eventually become an offshore hub too,” said Win Thin, head of emerging markets currency strategy at Brown Brothers Harriman & Co. in New York. “China will likely continue introducing bilateral trade and currency arrangements to help secure a steady flow of commodity imports, not just from Australia but from Africa and Latin America too.”

Authorities will roll out new measures in promoting interest-rate and exchange rate liberalization, China’s State Council, or cabinet, said in March following a meeting led by Premier Li on issues for the government to focus on this year. China ended a dollar peg in July 2005 and the currency has appreciated 34 percent against the greenback since then.

“China continues to liberalize its currency regime, but it is a slow and steady process,” said Thin. “However, the direction of China foreign-exchange reforms is clear.”

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