China’s yuan holds steady as state-owned banks sell dollars

SHANGHAI: China’s yuan held steady against the US dollar on Tuesday, underpinned by the sale of dollars by major state-owned banks.

China’s major state-owned banks were seen swapping yuan for US dollars in the onshore swap market and selling those dollars in the spot market to support the yuan, two sources with knowledge of the matter said.

The state bank actions come at a time the Chinese yuan strengthened 2.55% to the dollar in November for the best month this year. However, it is still down 3% year-to-date.

The sources said they believed the state bank moves were aimed at accelerating the yuan’s recovery and encouraging domestic exporters to settle their foreign exchange receipts into the local currency towards the year-end.

Chinese state banks often act on behalf of the country’s central bank in the foreign exchange market, but also trade on their own behalf.

The dollar index strengthened to 103.852 in late session on Monday, the highest level since Nov. 23, and is trading around 103.608 on Tuesday.

Investors didn’t take much cheer from a survey that showed China’s services activity expanded at a quicker pace in November.

Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1127 per US dollar, 116 pips weaker than the previous fix 7.1011, and 349 pips firmer than Reuters’ estimate.

China’s yuan slips as market waits on economic data, key policy meetings

The PBOC continued to set the daily fixing rate persistently lower than expectations in order to support the yuan, said Alvin Tan, head of Asia FX strategy.

The spot yuan opened at 7.1374 per dollar and was changing hands at 7.1452 at midday, 17 pips weaker than the previous late session close.

The offshore yuan was trading 48 pips weaker than the onshore spot at 7.15 per dollar.

Investors continued to watch the upcoming Central Economic Work Conference (CEWC) this month as it will set macro policy tones for 2024.

“We expect the CEWC to emphasize continued support for growth with proactive fiscal policy in a more explicit way, accommodative monetary and credit policy, and more support for the property market,” said economists at UBS.