Big Chinese banks trade yuan for dollars ahead: traders

SHANGHAI (Reuters) – Large Chinese state-owned banks have been seen trading yuan for dollars in CNYFWD =, but there was no immediate evidence of dollar sales in the spot market, the currency approaching a key support level, said three traders.

The transaction was mainly over the one-year duration of dollar / yuan swaps, traders said.

Exchange points for such a contract CNY1Y = CFXS fell to -135 points, the lowest level since September 6, down from the previous close of -109 points.

A negative figure means that the expected value of the yuan against the dollar in a year should increase.

"The big state banks have lowered the swap points, forcing others to follow them," said one of the traders.

Similar operations by major Chinese banks took place over the summer, traders claiming that this action was fueled by the easing of monetary policy.

On Tuesday, traders said there was no immediate evidence that banks were selling the dollars acquired through spot market swaps. Such a move would support the value of the CNY = CFXS cash yuan against the dollar.

Two traders indicated that they suspected the state-run banks of storing dollars for future use.

It is generally believed that China's largest state-owned banks often act on behalf of the People's Bank of China on the foreign exchange market.

The yuan is trading at its weakest level for more than a decade in the onshore spot market, sparking speculation as to whether the central bank will tolerate a slide beyond the closely watched level of $ 7 per dollar, This could lead to a sharp increase in capital flows from already cooling economy.