Finalizing FTA Deal will See Trade Volumes between Aussie Dollar and Yuan Go up

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Finalizing FTA Deal will See Trade Volumes between Aussie Dollar and Yuan Go upAustralia Prime Minister Tony Abbott is expected to sign the final terms to a trade agreement between China and Australia that will see transactions volumes between yuan and Australian dollar soar and lower the cost of business between the two countries.

Presently, the Aussie is one of the four currencies that can be fully converted into the Chinese yuan. The Chinese government is currently considering turning the renminbi into an international currency, reported the Australian.

The deal to convert the two currencies was signed a year ago though the trading volumes between the yuan and the Aussie dollar have started to stabilize after initially surging. Currency flows are estimated to be worth $US2.5 billion per month, up from around US$300 million before former prime minister Julia Gillard signed the convertibility deal in Beijing.

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Analysts had expected the turnover to increase every month as more Australian firms scaled up their Chinese exports. Currently, China is Australia’s No. 1 trading partner, with volumes valued at more than US$130 billion per year.

Other currencies that convert directly to the yuan include the New Zealand dollar, the Japanese yen and the US dollar. The deal between Australia and China ensures Australian export firms can receive payments in the Aussie dollar. The full convertibility lowers the transaction costs involved in using other currencies to settle the payments. Certain exporters say that the agreement cut the transaction costs by 10 percent.

“The trading between the dollar and the renminbi has flatlined over the past couple of months but it will take off again, the next obvious step is to see Sydney become a renminbi hub,” said Andrew Whitford, the head of Westpac in China. “I’m a very strong advocate for Sydney to become that hub. There is certainly a need for that to happen.”

Currently, commodity agreements from Australia to China are paid in US dollars, though the trend points towards increasing use of the yuan to settle them. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com