Exclusive: China's state banks seen swapping and selling dollars for yuan – Reuters

This illustration taken on March 10, 2023 shows Chinese Yuan and US dollar banknotes.Reuters/Dado Ruvic/Illustration/File photo Obtaining license rights

SHANGHAI, Nov 21 (Reuters) – China’s major state-owned banks were seen this week exchanging renminbi for U.S. dollars in onshore swap markets and selling the dollars in spot currency markets, two sources familiar with the matter said. A person told Reuters on Tuesday.

According to sources familiar with the matter, the yuan has appreciated by 2% over the past week, reaching a nearly four-month high of around 7.13 yuan to the dollar, and major state-run banks have continued to trade the dollar against the yuan this week. continues to sell.

Both sources spoke on condition of anonymity because they were not authorized to speak to the media about the matter.

The timing is unusual, as state-run banks have often been suspected of entering currency markets on behalf of authorities, but typically sell dollars when the yuan is under pressure.

Their actions over the past week have come amid widespread dollar weakness. The dollar index, which measures the dollar’s value relative to its major trading partners, fell more than 3% in November as U.S. yields succumbed to signs of peak monetary tightening by the U.S. Federal Reserve.

Some market participants said state-run banks may be accelerating the yuan’s appreciation and encouraging exporters to convert more of their foreign currency earnings into renminbi. The Chinese currency has fallen more than 3% against the dollar this year.

The onshore spot yuan at one point reached 7.1296 to the dollar, above the official daily guidance for the first time in four months, as state banks sold dollars.

The People’s Bank of China (People’s Bank of China) also lowered its daily fixed interest rates on the dollar and renminbi this week. On Tuesday, the midpoint was set at $7.1406 to the dollar, the lowest in three and a half months.

“It’s surprising that they keep cutting fixed rates at this pace,” said Kiyoung Sung, Asia lead macro strategist at Société Générale. It looks like it.”

“If the external environment is favorable, the renminbi seems to appreciate as much as possible.”

Recent data shows the recovery in the world’s second-largest economy remains uneven and bumpy, with industrial production and retail sales surprisingly picking up in October, while manufacturing activity and consumption Consumer prices continue to decline.

The economy still needs further policy stimulus, but given the wide interest rate differential between China and other countries, especially the United States, further monetary easing could put downward pressure on the Chinese currency, analysts said. There is.

The People’s Bank of China has been injecting cash into the banking system through Medium-Term Lending Facility (MLF) loans, but has recently kept interest rates on these loans unchanged.

“Unless there is a further significant dollar downside move or another major sentiment-positive event, there could be some volatility around this level at this point,” said Zhi Xiaojia, chief China economist at Credit Agricole. Ta.

“Indeed, the yield gap remains quite wide. Further policy easing, including cuts to the central bank interest rate and reserve reserve ratio (RRR), is still expected.”

Mr. Shi said he was “relatively positive” about the yuan from the end of the year to 2024.

Reported by Shanghai Newsroom.Editing: Simon Cameron Moore and Clarence Fernandes

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