Banks cut demand for US dollars
Chinese state-owned banks have gradually shifted from wanting dollars to reducing their demand for it, to offering it out, according to traders who declined to be identified as they’re not authorised to speak publicly.
Decreasing demand for US dollars
“The swap points reflect decreasing demand for the dollar as well as optimism toward the room for yuan to strengthen,” said Hao Zhou, chief economist at Guotai Junan Hong Kong Ltd.
Swaps might have also gained support from easing expectations of interest-rate cuts in China amid upbeat economic data, he said.
Fed rate cut expected in September
From a market pricing perspective, swap points tend to shrink when the interest rate outlook between the US and China starts to align.
That possibility has grown stronger, with markets anticipating a Federal Reserve rate cut in September and China’s recent economic data exceeding expectations — strengthening the belief the People’s Bank of China can afford to delay further easing.