Chinese state banks sold dollars to bolster the yuan late Tuesday – sources

SHANGHAI/BEIJING, Oct 26 (Reuters) – China’s leading state banks sold US dollars in both onshore and overseas markets to support the weakening yuan in late trade on Tuesday, two sources with direct knowledge of the matter told Reuters.

Such dollar selling comes as the Chinese currency faces downward pressure, with the onshore yuan hitting its weakest level since December 2007 and the yuan’s value against the currencies of major trading partners at a five-month low.

One source said that the sale of dollars by state banks in the early US trading hours boosted the yuan, noting that the action took place in both the onshore and offshore markets.

The other source also found that this type of state bank dollar was selling on the continental market late in the Asian day.

Sources said it is unusual for local branches of China’s major banks to be active in onshore trading during London or New York trading hours, although they normally trade offshore yuan and move to divert the onshore counterpart.

The offshore yuan has been tumbling back to record in recent sessions, reflecting a stronger dollar and concerns over a slowing Chinese economy.

The yuan purchase by state banks helped it crawl from a record low of 7.3746 per dollar to 7.3034.

The onshore yuan bounced from a low of 7.31 in the wake of state bank actions to track down nearly all intraday losses. It opened at 7.2949 per dollar when trading resumed on Wednesday and last changed hands at 7.2971 at 0229 GMT.

State-owned banks in China usually trade on behalf of the People’s Bank of China in the foreign exchange market, but may trade on their own behalf or place orders for their corporate clients.

Chinese regulators are busy taking measures to prevent rapid yuan depreciation. On Tuesday, they raised a parameter regarding cross-border corporate finance to make it easier for local firms to raise funds from overseas markets.

Sources told Reuters that the currency regulator asked them about their position in the currency market.

Reporting in the Shanghai and Beijing Newsroom; Editing Vidya Ranganathan and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.

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