The People’s Bank of China (PBOC) is the central bank that sets the daily midpoint for the yuan, also called the renminbi (RMB). It uses a managed floating rate system, allowing the yuan to change within a +/- 2% range around a central reference rate. Today, the reference rate is 7.1491, which is lower than the estimated rate of 7.1744 and the previous rate of 7.1702. The PBOC has also injected 226.2 billion yuan through 7-day reverse repos at a 1.40% rate, with 106.5 billion yuan maturing today. This results in a net injection of 119.7 billion yuan.

Active Approach By The PBOC

The PBOC is actively guiding the yuan to reflect its policy goals instead of letting it be entirely influenced by global markets. Today’s daily fixing rate was stronger than expected, showing the central bank prefers a stable or slightly stronger currency right now. Markets anticipated a weaker midpoint, but the actual fixing was above those expectations. This strategy helps discourage one-sided bets against the yuan. Additionally, the liquidity injection via reverse repos—specifically the net infusion of 119.7 billion yuan—indicates a desire to keep short-term funding conditions supportive of broader policy goals. This is likely meant to ensure financial institutions don’t feel squeezed. By tightening currency support while maintaining liquidity flow, we see a careful balance being struck between short-term rates and currency levels. Markets view this combination of actions as a clear message. It shows restraint against yuan depreciation while also accommodating domestic liquidity. Traders focusing on offshore and onshore hedging might start adjusting their models to minimize exposure to significant fluctuations, especially around month-end or during major data releases. Spot Yuan levels may remain in a narrower range in the coming sessions, aided by these daily fixings. Zhou’s recent statements—though not formal policy—suggest continued adjustments using familiar market tools. There’s no urgency for heavy-handed actions, but changes are clearly in progress. We’re likely to see small adjustments, possibly around shifts in the global dollar or local economic reports.

Currency Swaps And Structured Options

Currency swaps and structured options with built-in knock-in/out barriers may now have lower chances of payouts than they did just two weeks ago. Premiums, especially for downside protection, will need to be adjusted to reflect renewed confidence in a tighter range. Two-way volatility is being kept in check, which is important for those with Vega exposure. Taking a stance on short-term CNY pairs without considering the existing policy bias may lead to conflicting signals. History shows that going against these calmer moves can deplete capital without returns. It’s advisable not to expect a breakout unless the morning fixings and liquidity operations fall out of sync. One last point—we are closely monitoring the overnight repo market. There hasn’t been any stress so far, but if the injections become larger or more irregular, it could signal underlying anxieties not yet reflected in spot pricing. For now, the management of currency levels and timely liquidity support continues smoothly. Create your live VT Markets account and start trading now.

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