China’s major state-owned banks were seen swapping yuan for US dollars in the onshore forwards market and selling those dollars in the spot market on Thursday (Aug 31), three people with knowledge of the matter said.

The state banks often act on behalf of the central bank in the country’s foreign exchange market, but they could also trade on their own behalf or execute their clients’ orders.

The spot dollar selling seemed to be aimed at preventing the yuan from sinking too fast and too far, with the swaps helping procure dollars as well as anchoring the price of yuan in forwards, the sources, who had direct knowledge of market trades, told Reuters.

With such state bank actions, the onshore yuan has swung in a tight range on the firmer side of the 7.3 per dollar over the past week, prompting many market analysts and traders to believe that the level could be the yuan’s floor in the near term. It last traded at 7.2889 per dollar as of 0751 GMT.

And the yuan’s sideway trades also dampened market interest in spot trading, with the volume shrinking to US$28.6 billion on Wednesday, the lowest since April 10. It last stood at US$23 billion as of 0751 GMT on Thursday. REUTERS