Currency valuations have long played a role in global trade spats because the goods of countries with weak currencies have a price advantage over those sold from stronger-currency nations. China has weakened the yuan at times in the past but more recently it has engineered a strengthening. Retaliating against the Trump administration by weakening it any time soon is seen as a long shot.
SHANGHAI: Major state-owned Chinese banks were seen swapping yuan for dollars in forwards and immediately selling them into the spot market to prop up the Chinese currency, four traders said.
The dollar selling lifted the onshore spot yuan to firmer than the key 6.7 per dollar. In early trade on Tuesday, the spot rate weakened to a low of 6.7204, the lowest since Aug.7, 2017. The downturn came ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods kick in. Beijing has said it would retaliate with tariffs on U.S. products.
"Swap points were falling sharply, as big banks were offering," one of the traders said.
One-year tenor of the dollar/yuan swap fell to a low of 248 points on Tuesday morning, compared with the previous close of 360 points. - Reuters
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