China’s major state-owned banks were seen buying U.S. dollars at around 6.4 yuan per dollar level on Tuesday afternoon, four sources with knowledge of the matter said, in a move viewed as an effort to curb fast yuan appreciation to breach the key level.
The onshore yuan opened at 6.4110 per dollar and jumped to a high of 6.4016, the strongest level since June 2018 and a tad below the psychologically important 6.4 per dollar level.
One of the sources said the state-run bank quickly stepped in to soothe the fast yuan rally in the onshore market after its offshore counterpart rose past the key level.
“State banks jumped in to set a floor for the yuan (USD/CNY),” said another source.
Many market participants attributed the strength in the yuan on Tuesday to broad dollar weakness in global markets following softer-than-expected U.S. data and affirmations from Federal Reserve officials that policy would stay on hold.
A third source said that if the dollar continued its weakening trend, a breach of 6.4 was unavoidable.
China’s major state-run banks often act as agents for the People’s Bank of China (PBOC) in currency markets, but they also trade on their own behalf.
The PBOC over the weekend urgently reiterated no change to the currency policy after comments from central bank researchers that had unnerved the market.
Some market participants added that they would pay close attention to Wednesday’s yuan midpoint, one of the key signals showing official attitude toward the yuan’s level, to gauge if authorities have started to feel uncomfortable with the sharp yuan rally.