China's state banks step in to support as yuan weakens to six-month low, sources say

FILE PHOTO: A bank employee counts China’s renminbi (RMB) or yuan notes next to U.S. dollar notes at a Kasikornbank in Bangkok, Thailand. REUTERS/Athit Perawongmetha//File Photo

BEIJING/SHANGHAI: China's major state-owned banks were acquiring U.S. dollars in the offshore foreign exchange market before selling them in the spot market to stabilise the Chinese currency in recent sessions, people with knowledge of the matter said on Wednesday.

The state bank actions came as the Chinese yuan fell to a six-month low on Wednesday against a resurgent dollar.

The state banks' tactics in the offshore market were slightly different from what they have done over the past few months, when they tightened offshore yuan liquidity to raise the cost of shorting the Chinese unit, four sources said.

They were busy swapping yuan for dollars in the offshore forwards market before selling those dollars in the spot market this time round, a combination of swaps and spot market activity that is often seen in state banks' onshore trades to prevent rapid yuan declines, the sources added.

All the sources spoke on condition of anonymity as they are not allowed to publicly discuss market conditions.

Chinese state banks sometimes act on behalf of the central bank in the foreign exchange market, but they can trade on their own behalf. - Reuters