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China state banks seen supporting yuan in forwards market-sources

Published 08/07/2019, 12:16 AM
Updated 08/07/2019, 01:36 AM
China state banks seen supporting yuan in forwards market-sources

China state banks seen supporting yuan in forwards market-sources

(This story corrects 5th paragraph to read that a state bank was seen in the market, not two foreign banks)

By Winni Zhou and Andrew Galbraith

SHANGHAI/SINGAPORE (Reuters) - China's state banks have been active in the onshore yuan forwards market this week, using swaps to tighten dollar supply and support the Chinese currency, four sources with knowledge of the matter told Reuters.

The spot value of the yuan has fallen sharply this week against the dollar as tensions between China and the United States escalated and prompted fears that their trade war could shift into a currency war.

The sources said banks had conducted significant amounts of buy-sell swaps in the onshore market on Tuesday. Buy-sell swaps help to reduce the supply of dollars that the market can access to short-sell the yuan.

"Yesterday big banks were all selling one-year onshore forward swaps, then in the afternoon the spot dollar-yuan fell," said a trader at a foreign bank in Shanghai.

One state bank also was seen active in offshore forward swaps, two traders at foreign banks with knowledge of the matter said.

On Wednesday, one-year onshore dollar-yuan forwards were at 175 points, down from 321 points on Monday , according to Refinitiv data. One-year offshore dollar-yuan forwards were at 459 points, down from 640 points on Monday.

"The movement in forward points may reflect a tightening in USD (dollar) liquidity when some market participants need to buy spot dollars and sell them back in forwards. Meanwhile, the spot and outright moves were also partly due to a stabilization in RMB (yuan) sentiment on Tuesday," said Frances Cheung, head of macro strategy for Asia at Westpac in Singapore.

China allowed the yuan to trade at more than 7 per dollar on Monday for the first time in more than a decade, after which the U.S. Treasury labeled China a currency manipulator, raising the stakes in the trade war between the two countries.

The currency steadied on Tuesday as Chinese authorities took steps to contain its slide.

Early on Wednesday, the yuan was trading at 7.0353 per dollar in the onshore spot market, down about 0.15% from Tuesday's late-session close.

The offshore yuan was 0.2% weaker than Tuesday's close at 7.0701 per dollar.

U.S. President Donald Trump has dismissed fears of a protracted trade war despite a warning from Beijing that labeling it a currency manipulator would have severe consequences for the global financial order.

Latest comments

Yes, China can start selling treasuries and we will have huge inflation. That will put the US into a period called the Dark Period as we will have mass unemployment. So Trump should think twice about doing more tariffs. He doesn't understand the economic consequences.
I have been telling you guys ... but you don't listen. China is winning the trade war hands down. Thry will put Trump out of a job soon. The farmers ain't voting for him.
China CCP of couse do not mind hiking up their already high inflation in the name of patriotism to ensure their power, the livelihood of their people matters the least, the new Asian *****is srising
The new Asian N:a:z:i is showing its true color
no we aren't a currency manipulator - oh your putting us on the list, dang! Now that they are on the list a whole new bunch of realities, be very careful, simple responses are very naive!!!
they drop thier surplus of dollars then the US gets hit with massive inflation due to our dollars heading home. The Fed will have to raise rates to counter act the inflation. the stock market will crash as a result
Inflation? Wouldnt it be deflation with more bills headed home?
yes by devaluing they importing inflation and exporting deflation
text book logic has never worked. lol. the us dollar is the world reserve.
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