Nov. 29 – The Chinese local currency renminbi (RMB) kicked off trading against the Australian dollar and the Canadian dollar in the country’s onshore market on Monday. The two new foreign currencies have become the latest additions to the seven other foreign currencies that are currently being traded directly against the RMB.
The RMB opened at 6.1266 against the Canadian dollar on the first day of trading, after the People’s Bank of China (PBOC) fixed the RMB/Canadian dollar’s mid-point at 6.1048, and was later hovering around 6.123.
On the same day, it opened at 6.2769 against the Australian dollar, compared with the PBOC’s mid-point setting of 6.2491, and reached around 6.2714 later in the session.
The RMB can fluctuate as much as 3 percent against the two currencies, compared to its 0.5 percent movable rate to the U.S. dollar.
Traders said the RMB pricing against the two currencies largely reflected the RMB value against the U.S. dollar and the U.S. dollar’s value against the Australian and Canadian dollars, indicating the RMB trading still has a heavy reliance on the value of U.S. dollars.
However, the introduction of an increasing number of foreign currencies to trading against the RMB is part of the Chinese government’s efforts to reduce such reliance.
China has been undertaking a series of measures to boost cross-border RMB-denominated trade since 2009 in a bid to simplify trade settlement and promote the RMB’s international position. A new move was also taken last month by the Ministry of Commerce to officially open the door to RMB-denominated foreign investment.
The strong policy support has led to a surge in the RMB-denominated trade volume between China and the rest of the world. Hong Kong, the southern Chinese special administrative region, has been made an offshore RMB center as overseas RMB pools grow larger.
Traders and economists have been witnessing a mounting necessity to realize direct RMB trading against the Aussie dollar, as China has turned into Australia’s largest trading partner and export market. The amount of trading deals struck between the two countries every year is significant, especially in the mining sector.
The inclusion of the Canadian dollar has revealed China’s acknowledgement of Canada’s importance as one of the G-7 members. It has also helped realize RMB trading against all the currencies that G-7 members use – namely the U.S. dollar, the Japanese yen, the British pound, the euro and the Canadian dollar.
C.J. Gavsie, managing director of corporate and institutional foreign-exchange sales at BMO Capital Markets in Toronto, believes that China’s approval of the two currencies’ onshore trading against the RMB will encourage more and more Chinese companies that conduct business abroad to start holding far more of those currencies.
“There will be a buildup over time,” added Gavsie, emphasizing the increase in such holdings will be gradual.
However, for the time being, traders who seek to acquire Canadian or Australian dollars may still turn to U.S. dollar pairings because the greenbacks have much better liquidity, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Experts predict there will be more foreign currencies joining the onshore direct trading against the RMB in the future. While the introduction of Australian and Canadian dollars this year followed the inclusion of the Russian ruble and the Malaysian ringgit last year, the Singapore dollar and Korean won are expected to be among the next currencies to be traded versus the RMB.
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