China’s major state-owned banks were reported to be selling dollars to buy yuan in offshore markets on Monday.
Three sources said the move had raised the cost of shorting the Chinese currency.
State banks often act as agents for China’s central bank in the offshore foreign exchange market, but they could also trade on their own behalf or execute their clients’ orders.
Tightening up offshore yuan liquidity could also act to stabilise the yuan, one of the sources said.
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The move effectively raised the cost of shorting the Chinese yuan, at a time the local unit is facing mounting depreciation pressure.
The cost of shorting the yuan jumped, the sources said, as seen from sudden rises in offshore yuan tomorrow-next forward points.
Following the state bank move, the offshore yuan pared some losses from its intraday low of 7.3360 per dollar to 7.3050 as of 0923 GMT, while its onshore yuan also gave up some of its earlier loss to trade at 7.2996.
China’s major state-owned banks were seen busy selling US dollars to buy yuan in both onshore and offshore spot foreign exchange markets last week, sources said, in an attempt to arrest the yuan’s rapid losses.
- Reuters with additional editing by Jim Pollard
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