The sources say that China's major state-owned banks were seen buying dollars in the onshore market this week and held on to them in what a not so typical situation in the Chinese market. The dollar buying comes as state banks tried to smooth out the surging rise of the yuan currency.
However, this time around lenders did not appear to recycle the dollars into the swap market. For some context, this helps to keep dollar liquidity tighter and indirectly raise the cost of long yuan positions.
One of the sources noted that the moves here are directed to moderate the pace of yuan gains, not so much so to reverse the recent uptrend against the dollar.
So far this year, the yuan is up over 3% against the dollar year-to-date and that will mark the biggest yearly jump in the currency against the greenback since 2020. USD/CNY took out the floor of 7.10 last week and nearly touched 7.06 this week before a slight bounce today to 7.07, still keeping at its weakest levels since October last year.
