Unlock Premium Data: Up to 50% Off InvestingProCLAIM SALE

China state banks selling dollars for second day to support yuan-sources

Published 12/05/2023, 10:02 PM
Updated 12/05/2023, 10:11 PM
© Reuters. Chinese Yuan and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

SHANGHAI (Reuters) -China's major state-owned banks were selling U.S. dollars in the onshore spot foreign exchange market for a second day on Wednesday to support the yuan currency, three sources with knowledge of the matter said.

The yuan has come under renewed depreciation pressure after rating agency Moody's (NYSE:MCO) on Tuesday cut its outlook on China's government credit ratings to negative from stable, citing expectations of slower economic growth and property market risks.

State banks were busy buying the yuan in currency markets on Tuesday to prevent it from weakening too much, and their dollar selling became very forceful after the Moody's statement, Reuters reported.

State banks stepped in again in early trading on Wednesday, but the sources said the dollar selling was rather mild, as the yuan weakness had prompted some domestic exporters to settle their foreign exchange receipts in morning deals, which helped the yuan recover.

Chinese exporters usually convert their FX receipts into the yuan towards year-end for various payments including year-end bonus handouts. And the seasonality usually supports the Chinese currency.

Despite the state banks' actions, the yuan still slipped on Wednesday.

Spot yuan opened at 7.1570 per dollar and was changing hands at 7.1568 as of 0300 GMT, 88 pips weaker than the previous late session close. Its offshore counterpart was trading at 7.1641 per dollar around 0300 GMT.

With China's economy sputtering and the U.S. dollar surging until recently, the yuan has had a volatile year, having weakened 6.14% to the dollar at one point before giving back much of the losses on recent views that U.S. interest rates have peaked.

© Reuters. Chinese Yuan and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

The yuan strengthened 2.55% in November, its best month this year, but it is still down about 3.6% year-to-date.

State banks in China usually trade on behalf of the country's central bank in the currency market, but they could also trade on their own behalf.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.