Three persons with firsthand knowledge of the situation claimed that during early Asian trade on Tuesday, China’s big state-owned banks were observed selling dollars to purchase yuan in both onshore and offshore spot markets. These actions aimed at boosting the Chinese currency.
In the country’s foreign exchange market, China’s state banks typically trade on behalf of the central bank, while they may also trade on their own behalf.
Dollar sales followed a Monday commitment by China’s top leaders to increase policy assistance for the economy amid a sluggish post-COVID-19 recovery, focused on increasing domestic demand and signalling more stimulus measures.
Policymakers also said China will keep the yuan exchange rate basically stable at reasonable and balanced levels, and vowed to invigorate the capital market and restore investor confidence.
“It is interesting that the Politburo mentioned FX stability in the statement, for the first time in recent years,” analysts at HSBC said in a note.
“This means that smoothing yuan depreciation pressure may become more of a policy priority from now on. This is in line with the People’s Bank of China’s (PBOC) further tightening of FX policy recently.”
China’s monetary authorities have ramped up efforts recently to defend a weakening currency. Last week, regulators relaxed rules to allow companies to borrow more overseas while the PBOC has been persistently setting daily midpoint guidance rate firmer than market projections.
The onshore yuan strengthened more than 0.6% to a high of 7.1411 per dollar and was fetching 7.1541 as of 0314 GMT. It is still down 3.5% against the greenback so far this year – one of the worst performing Asian currencies.
Its offshore counterpart followed the strengthening trend and surged to a week high of 7.1475 before being last traded at 7.1542.
