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China’s major state-owned banks are trying to rein in the yuan’s appreciation by swapping US dollars for the Chinese currency. 

Key points/quotes (Source: Reuters)

Those swap operations have caused the value of the yuan to fall in the forwards market, tamping expectations that it will appreciate further and simultaneously making it more expensive for investors to borrow yuan.

“The swap market actions, along with recent policy moves, were all meant to slow down the pace of yuan appreciation,” one trader told Reuters. 

The swaps by the big state banks drove up the one-year premium on dollars to as high as 1,700 points this week, implying a 2.5% decline over the next 12 months in the tightly managed yuan.

USD/CNY is currently trading at 6.7150, having put in a low of 6.6424 last week. At press time, the pair is down 6.44% from the high of 7.1777 reached in May 2020.