Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

China's state banks seen supporting yuan as Moody's cuts outlook - sources

Published 12/04/2023, 10:49 PM
Updated 12/05/2023, 04:32 AM
© Reuters. FILE PHOTO: U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
USD/CNY
-

SHANGHAI (Reuters) -China's major state-owned banks were busy buying the yuan in currency markets on Tuesday to prevent it from weakening too much, two sources with knowledge of the matter said, with buying intensifying after rating agency Moody's (NYSE:MCO) cut China's outlook to negative in the afternoon.

State banks were spotted swapping yuan for U.S. dollars in the onshore swap market and quickly selling those dollars in the spot market to support the yuan throughout the whole trading session, the sources said.

But the banks' dollar selling became very forceful after the Moody's statement, one source said.

China state banks have in the past year often sold dollars to slow the yuan's decline against the U.S. dollar. Markets have often seen the moves as a sign of official attempts to relieve pressure on the currency, though banks could also be trading for their own accounts.

Moody's on Tuesday cut its outlook on China's government credit ratings to negative from stable, citing expectations of lower medium-term economic growth and risks from a deep correction in the country's vast property sector.

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.

The yuan strengthened 2.55% in November, its best month this year, but it is still down 3% year-to-date.

However, some analysts said the impact on the yuan from the Moody's decision will not be sustainable.

© Reuters. FILE PHOTO: U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

"The issues plaguing the property sector are not new," said Khoon Goh, head of Asia research at ANZ.

"The steps taken by the authorities recently should see a bottom soon. The upcoming U.S. data will be more important for the near-term direction of the yuan," Goh said, referring to a spate of government measures to revive the real estate market.

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.