Chinese banks' dollar purchases via swaps from clients hit record high in Jan

chinese banks' dollar purchases via swaps from clients hit record high in jan

FILE PHOTO: Chinese Yuan and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

SHANGHAI/SINGAPORE (Reuters) – Chinese banks purchased the most dollars from their clients via FX swaps in January, official data from the FX regulator showed on Monday, suggesting exporters preferred to only temporarily acquire the local currency while holding on to dollars.

Chinese banks’ foreign exchange purchases via swaps from their clients hit $50.9 billion in January, the highest level on record, data from the State Administration of Foreign Exchange (SAFE) showed.

The data shows exporters are increasingly turning to the swap market to convert their overseas earnings and remittances into yuan, rather than outright dollar selling, as they seek higher returns on dollars and wait for better exchange rates.

Such a swap implies exporters give the banks their dollars and receive yuan through a contract that reverses the transaction at maturity.

Heightened interest in using the FX swaps to temporarily acquire the yuan comes as yield differentials between the world’s two largest economies widened in January, as market participants pushed back on the timing of interest rate cuts in the United States to drive the dollar higher.

And such an expectation increased corporates’ willingness to hold on to dollars.

“As the yuan interest rates are much lower compared to the dollar and euro interest rates, Chinese exporters have the incentives to repatriate just enough FX receipts into the yuan for payments while keeping the rest in FX deposits,” said Tommy Wu, senior China economist at Commerzbank.

“This trend will likely persist for longer because even after the Federal Reserve and the European Central Bank (ECB) start cutting rates at some point this year, the dollar and euro interest rates will remain much higher than the yuan interest rates.”

Yield gap between China’s benchmark 10-year government bonds and U.S Treasuries for the same tenor stood at 185 basis points on Monday, up from 128 basis points at the end of 2023.

(Reporting by Winni Zhou and Vidya Ranganathan; Editing by Bernadette Baum)

News Related

OTHER NEWS

From arts to sciences: Once a teacher, always a teacher

Despite doing education at the university, Mellon Kenyangi, also known as Mama Bear, did not think of going to class, and teaching students was her dream job.“Since it was not ... Read more »

WC squad was picked on players’ performance, says Pramodya

213 Sri Lanka Cricket’s Chairman of Selectors, Pramodya Wickramasinghe reported to the Sports Ministry’s Special Investigation Unit( SMSIU) for the Prevention of Sports Offences yesterday for the second day. He ... Read more »

Malindu Dairy bags Industrial Excellence Silver Award

137 Malindu Dairy (Pvt) Ltd., a leading food production company in Sri Lanka, won the Silver Award in the medium-scale dairy and associated products category at the Industrial Excellence Awards ... Read more »

Africans Urged to Invest Among themselves, Explore Investment Opportunities in Continent

Africans Urged to Invest Among themselves, Explore Investment Opportunities in Continent Addis Ababa, November 27/2023(ENA)-The Embassy of Angola in Ethiopia has organized lecture on the “Foreign Investment Opportunities in Angola ... Read more »

Mohan Wimalaratne will lead Police this season

144 The dynamic front row player Mohan Wimalaratne will lead the Police Sports Club Rugby team at the upcoming Nippon Paint Sri Lanka Rugby Major League XV-a-side Rugby Tournament scheduled ... Read more »

Church assists the disabled in Bulawayo

Dozens of people living with disabilities from New Hope Inclusive in Entumbane, Bulawayo on Saturday last week received an early Christmas gift in the form of groceries. The groceries were ... Read more »

Somalia Joins East African Community

The East African Community (EAC) Summit of Heads of State has admitted the Federal Republic of Somalia to the regional bloc, making it its 8th member country. The decision was ... Read more »
Top List in the World