A senior currency strategist tells GTR that the immediate demand for direct trading between the Australian dollar (A$) and Chinese renminbi (Rmb) is low.

Direct trading between the two currencies began in April. The Australian dollar is the third major currency allowed to have direct trading links with the Chinese Rmb after the US dollar and Japanese yen.

China is Australia’s largest trading partner, buying 27% of all Australia exports. While many market participants have welcomed the direct trading between the two currencies, currently only 1% of trade contracts between Australia and China are settled in Rmb.

Greg Gibbs, senior foreign exchange strategist for RBS in Singapore tells GTR: “I recently spoke to a corporate last week in Australia and they thought the direct Australian dollar and Chinese Rmb trade was a good idea and might help save some transaction costs over time, but they said it would be in a gradual fashion. This is just the start. Before it develops, there needs to be deeper markets for hedging exposures. Customers in China still have a preference for settling in US dollars.”

James Hogan, HSBC’s head of commercial banking in Australia, says: “Given that China represents over 20% of Australia’s current trade and is expected to grow by 8.5% per year by 2020, The Rmb’s role within Australian trade will inevitably rise. This is a significant achievement for Australia. It not only demonstrates its support for the ongoing internationalisation of the Chinese currency but will ensure Australia gets ahead of the curve in terms of growing the trade links between Australian and Chinese businesses.”