SHANGHAI (Reuters) – China’s major state-owned banks have been swapping U.S. dollars for yuan this week, traders said on Thursday, suggesting monetary authorities are trying to rein in the sharply appreciating currency.
Those operations in the onshore currency swap market have caused the value of the yuan to fall in the forwards market, dampening expectations for it to appreciate further and simultaneously making it more expensive for investors to borrow yuan.
Two traders told Reuters they saw big state banks buying dollars in the onshore spot market during late night trading sessions to effectively prevent the yuan from strengthening too fast.
The yuan has appreciated 7% to the dollar since the depths it hit in May, as China’s rapid recovery from the coronavirus pandemic and high-yielding markets draw foreign investor inflows.
Traders took these state bank actions as an official sign that the authorities might not want the Chinese currency to strengthen too much in a short period of time, hurting exports.
“The swap market actions, along with recent policy moves, were all meant slow down the pace of yuan appreciation,” said one of the traders.