The Chinese yuan went down against the dollar on Thursday on strong corporate demand for the dollar, forcing state-owned banks to offer dollar liquidity to keep the Chinese currency from falling too fast, according to traders.
According to traders, major state-owned banks were seen selling dollars in the onshore forex market. They said the selling was an attempt to support the yuan after it dropped past 6.92 to the dollar in early trade.
Before the market opened, the People’s Bank of China set the midpoint rate to 6.9125 per dollar, weaker than the 6.9032 of Wednesday.
The spot market opened at 6.9131 per dollar and was trading at 6.9188 at midday after hitting a low of 6.9207, the lowest since January. The midday level was 53 pips weaker than the previous late session close and 0.09 percent softer than the midpoint.
Before the state banks entered the market large dollar purchases by companies and additionally a strengthening greenback in global markets weighed down on the yuan, traders said.
One trader at a foreign bank in Shanghai said: "Companies' willingness to buy dollars was quite strong today. The quicker the yuan depreciates, the more dollars companies purchase."
A second trader stated it was “normal” for the state banks to offer dollars in such a case as Beiijing is holding its annual parliamentary meetings.
The global dollar index went up from 102.07 the last session to 102.2, close from a high of 102.26 reached in March 2.
The offshore yuan was trading 0.12 percent weaker than the onshore spot at 6.9268 per dollar.