China's state banks buy USD in swaps market to stabilize CNY

China's state-owned banks on Monday reportedly sold a high volume of US dollars and used a combination of swaps and spot trades to defend the weakening yuan, which is already down 11.6% against the dollar this year.

Previously, major Chinese state-owned banks exchanged yuan for US dollars on the forwards and spot markets in 2018 and 2019.

The recent selling appears to have been aimed at stabilizing the yuan, with the swaps helping procure dollars as well as anchoring the price of yuan in forwards. At the same time, the operations, apparently, did not affect China's $3 trillion foreign exchange reserves.

One-year dollar/yuan forwards fell rapidly following the state bank actions, pushing the yuan to 7.20 per dollar.