The Australian dollar is set to be the third currency fully convertible against the Chinese yuan a move which will lower business transaction costs.
Julia Gillard will today sign a currency convertibility deal between Australia and China which is expected to cut the cost of doing business and reduce hedging risks as trade between the two nations strengthens, the Australian reported.
The deal means Australian companies will no longer have to buy US dollars to settle Chinese transactions.
Rio Tinto’s Australian managing director David Peever said business will welcome the opportunity to lower transaction costs when dealing with China.
But given commodity contracts are priced in US dollars the convertibility deal isn’t expected to have a huge impact on the mining sector.
Rather the deal is expected to help exporters outside the mining sector increase trade to China.
"The deal has the potential to encourage greater trade and investment flows between Australia and China," Peever said.
China is currently Australia's largest trading partner; trade between the two nations is estimated to be worth up to $US130 billion a year.
Taking over a year to negotiate the deal may come into effect as early as tomorrow.
National Australia Bank chairman Michael Chaney said convertibility was good for Australian businesses and is a sign that China is committed to implementing major financial market reforms.
"The direct exchangeability is going to start to happen," Chaney said.
"China has started to move down the path of financial deregulation after it took a pause following the global financial crisis. I'm confident that there will be more deregulation but it will be carried out in a fairly cautious way."
"The economies of Australia and China are going to become more integrated and not just in terms of commodities, but hopefully in areas like the sale of services," HSBC Australian and Stockland chairman Graham Bradley said.
"I don't think we are getting the full benefits out of the China boom that we could be at the moment. It is still relatively early days and there is a long way to go," he said.
"It is the situation where every sector of the Australian economy has an opportunity in China, be that in direct trade or investment or through partnership agreements."