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Exporter Preference for FX Swaps Fulfils Both Commercial, FX Management Needs

CHINA
  • Several reports on CNY FX intervention remain a focus for Chinese markets, with Reuters reporting that Chinese exporters are using currency swap deals to hold USD, while state-owned banks are selling USD in spot markets to support the currency.

The structure and use of these FX swaps is fulfilling several requirements:

  • Exporters' preference to hold USD exposure given the appreciation in USD/CNY
  • Exporters' need to pay local suppliers, settle tax bills in CNY
  • Provision of USD to state-owned banks, which can sell in spot markets to pressure USD/CNY

The FX swaps structure allows exporters to place FX earnings (namely USD) with state banks and swap for CNY - with a fixed term, allowing them to conduct business in local currency, then swap back to USD at a later date and earn carry in the process. This is further incentivized by lower returns in USD deposit accounts, for which rates have been cut in recent months.

Regulators allow the swap contracts as they provide banks with USD, with which they can in turn sell in the spot market and stem CNY weakness

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Energy BulletsCommodities
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Energy BulletsCommodities

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