The Chinese yuan fell to a low of 10 months In front of a super dollar before paring some losses on Wednesday, when the state banks stepped in to offer support to prevent the local currency sink even more. For Argentina, this is bad news for local reserves, which are 50% made up of chinese currency. Also, for the freed up swaps to intervene in the market.
Sources told Reuters that major state banks were seen absorbing liquidity in yuan on the offshore foreign exchange market and actively selling dollars at home in early trading, in an attempt to stem the yuan’s rate of decline.
State banks often act on behalf of the central bank of china in the foreign exchange market, but may also trade on their own behalf or execute client orders.
Yuan: strong intervention to defend the currency
Also, the central bank continued its months-long trend of fixing the daily midpoint of the yuan at firmer-than-expected levels to stem the weakness.
On Wednesday, the People’s Bank of China set the mid-range CNY=PBOC exchange rate, around which the yuan is allowed to trade in a 2% band, at 7.1969 to the dollar, 186 pips weaker than the previous setting of 7.1783.
Wednesday’s fixing, the weakest in two weeks, was much stronger than the market had projected. And it was 1,128 pips firmer than the Reuters estimate of 7.3097, marking the second largest estimated deviation during the current round of yuan depreciation.
“With the People’s Bank of China defending the yuan quite aggressively, we still think the risk reward may not favor the yuan at this point,” Maybank analysts said in a note.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
