UPDATE 1-China state banks bought dollars on Friday to drag yuan lower -sources

  • 9/6/2021
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(Adds comments and background) SHANGHAI/BEIJING, Sept 6 (Reuters) - China’s major state-owned banks were seen buying U.S. dollars in the onshore spot market late on Friday, pushing the yuan lower, three sources with direct knowledge of the matter said. The onshore spot yuan strengthened on Friday after disappointing U.S. jobs data pushed the dollar lower. The move by the state banks was seen as an effort to rein in rapid yuan appreciation, with one source saying the aim was to ensure the currency closed on the weaker side of the 6.45 per dollar level. One of the sources said authorities do not want overly sharp rises or falls in the exchange rate, especially as markets face rising overseas uncertainties, including the prospect of the U.S. Federal Reserve tapering pandemic-era stimulus. The onshore yuan finished Friday’s session at 6.4585 per dollar after rising to a high of 6.4305, the strongest since July 17. The dollar came off its immediate post-payrolls lows on other currencies as the New York session continued. The state bank actions on Friday left market participants wondering about the policy stance and kept the yuan swinging in a thin range on Monday. “The market was heatedly discussing what happened on Friday night, trying to gauge policy attitude,” said a trader at a foreign bank. China’s major state-owned banks often act as agents for the central bank in currency markets, but they also trade on their own behalf. The yuan has gained about 11% against the dollar since May last year, supported by heavy foreign investment in mainland stocks and bonds and a huge current account surplus. Its gains now appear stretched, with its trade-weighted index at 5-1/2-year highs. A currency that is too strong could hurt exporters and many market economists now expect some yuan weakness if China loosens credit conditions and rolls out more fiscal and monetary easing to support the economy, especially as data shows the economic rebound losing steam. However, any easing from Beijing would be targeted with a Fed tapering later this year still a real possibility. Memories are still fresh of the yuan’s steep decline against the dollar when the Fed ended its previous quantitative easing programme in 2014. Sources told Reuters last week that China’s currency regulator has been conducting a rare survey of banks and companies to ask about their risk management processes and ability to handle volatility in the yuan. Reporting by the Shanghai and Beijing Newsroom; Editing by Christian Schmollinger and Sam Holmes Our Standards: The Thomson Reuters Trust Principles.

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