SHANGHAI (Reuters) – China's yuan rebounded more than a year low against the US dollar on Friday afternoon after traders said big state banks sold dollars to shore up the fragile Chinese currency shaken by a bitter Sino became -US trade conflict.
FILE PHOTO: Chinese 100 yuan banknotes can be seen in this image from July 1
The People's Bank of China lowered its yuan average on the seventh trading day to 6,671,771 per dollar on Friday, 605 pips, or 0.9 percent, weaker than the previous fix of 6.7066.
The last bout of Yuan weakness catalyzed by concerns over the brewing industry of China-US. Trade war and a slowing Chinese economy, the yuan has lost 7.6 percent of its value against the dollar since the end of the first quarter of this year.
The fix on Friday was the lowest since July 14, 2017, representing the largest one-day weakening since June 27, 2016.
The average largely matched market forecasts, so the traders seem to point to the authorities unwilling to slow the fall of the yuan.
Later, four traders said they saw large state banks sell dollars and support the yuan.
"Big banks offered dollar liquidity on land and sea instead of just selling on land as they used to, and in that case, it could have a better effect," one of the traders said.
Another dealer said he saw state banks selling $ 6.81 dollars on land. The dollar had the yuan withdrawing from its downhill line.
Traders and economists argue that they suspect that large state-owned banks sometimes buy or sell currencies to influence the exchange rate as a form of intervention on behalf of the central bank.
Ken Cheung, senior FX strategist for Asian currencies at Mizuho Bank in Hong Kong, said investors are uncertain about the future of the Chinese currency.
"Investors do not know how far the yuan could fall," he said.
"(The authorities) may wish to keep economic growth steady, and the direct impact of a weaker yuan could offset some of the negative effects of the trade war, but it will be difficult to maintain the confidence of foreign investors in the purchase of yuan-denominated assets.
Complicatingly, US President Donald Trump said in an interview on CNBC television overnight that he feared that the Chinese currency would "fall rock" and the strong dollar "puts us at a disadvantage."  The spot yuan market shook off the comments and opened at $ 6.7950 per dollar on Friday, before easing off from 6.8128 to 6.8128 at one point.
It compensated for all losses in the afternoon. Starting at 6:00 GMT, the onshore spot yuan was trading at 6.7760, 36 pips higher than the previous closing price.
The spot rate may currently be traded on any day within a range of 2 percent above or below the official fixing.
Offshore, the yuan traded 0.33 percent softer than the onshore spot at $ 6.7983.
Some traders said that the dollar liquidity offered by the big state banks in the morning stopped the sharp decline in the yuan, causing the price to reverse.
Although many in the market do not believe that the authorities have set a steady line for the depreciating Chinese currency, some said they are not overly bearish for the moment.
m.K. Tang, senior China economist at Goldman Sachs, said he was not too worried about the devaluation of the yuan as policymakers could better control the drainage channels.
"The devaluation that we have seen is why policy makers are content with that, but if politicians feel uncomfortable one day because they think it's too over the top, then I think that Authorities are likely to find ways to stabilize the currency, "Tang said.
" Basically, we think CNY is like many other exchange rates in the world, it can go up and down, depending on the macro perspective and such things. "
Reporting by Winni Zhou and Andrew Galbraith; Edited by Sam Holmes & Shri Navaratnam