Australia and China have reached a new agreement to allow the Australian and Chinese currencies to trade directly, visiting Australian Prime Minister Julia Gillard said Monday in Shanghai, China, according to a statement by her press office.

"Earlier today we took a significant new step in the relationship when I welcomed a new agreement between our financial authorities. The Australian and Chinese currencies will be directly traded on the Chinese mainland for the first time," Gillard said when giving a speech at China Executive Leadership Academy Pudong (CELAP), a Shanghai-based national institution.

This agreement makes the Australian dollar the third major currency to directly trade in China's mainland foreign exchange market, after the U.S. dollar and the Japanese yen.

"This reflects the rapid growth of our bilateral trade and the value of two-way investment, and it also creates opportunities for new financial integration," Gillard said.

"The important Chinese government policy objective of greater internationalization of the Chinese currency will be significantly advanced by these decisions," she added.

Gillard also said she hoped that Australia's banks, superannuation funds and financial houses will be better placed to help in the growth of China's service economy.

The prime minister hailed the development of Australia-China relations since the establishment of diplomatic ties in 1972, saying that bilateral trade has grown one thousand fold in the past 40 years.

"Today, China is Australia's largest trading partner, and Australia is China's seventh largest trading partner," she said.

Also, Chinese nationals made more than 620,000 visits to Australia last year while 380,000 Australian tourists travelled to China.

There are around 150,000 Chinese students studying in Australia. Mandarin is the second most commonly spoken language in Australia, next only to English. Chinese community in Australia now numbers over 900,000.