Chinese Banks Cooperate in Order to Support the Yuan
As the United States readies more sweeping tariffs on Chinese goods, the People’s Bank of China may have to decide soon whether to intervene more forcefully to support the yuan. After tinkering around the edges while the yuan fell for four straight months, the China’s Central Bank recently signaled it would be uncomfortable with further declines and managed to steady the currency before it tested the sensitive 7-per-dollar level.
Traders said today, that Chinese state-owned banks have swapped dollars for yuan in tenors ranging from a month to a year in the offshore forwards market in recent days. These steps should provide some support for the yuan, amid escalation in the US-China tariff war. Earlier, US President Donald Trump stated, that he plans to impose tariffs on $200 billion more of Chinese imports.
Major state-owned Chinese banks have been seen swapping yuan for dollars in onshore forwards since mid-June, pushing the onshore yuan's anticipated value sharply higher against the dollar in a year's time. The one-year tenor of the dollar/yuan swap onshore stood at -170 points on Tuesday, while the offshore swaps for the same tenor traded at 633.75 points.
China's yuan rose slightly against the US dollar today, supported by a stronger midpoint and signs of tight liquidity for offshore yuan. The People's Bank of China set the midpoint rate at 6.8183 per dollar, 164 pips or 0.24% firmer than the previous fix of 6.8347.