The People’s Bank of China (PBOC) has set today’s USD/CNY reference rate at 7.1371, which is lower than the expected 7.1852. The bank uses a floating exchange rate system, allowing the yuan to move within a +/- 2% range around a central rate. The last closing rate for the yuan was 7.1795. In its monetary operations, the PBOC added 238 billion yuan through 7-day reverse repos at an interest rate of 1.40%.

Net Injection Into The Market

With 122 billion yuan maturing today, the net injection into the market stands at 116 billion yuan. Today’s actions by the central bank send a strong message against weakness in the yuan. The big difference between the official rate and market expectations serves as a warning to those betting against the currency. In the short term, shorting the yuan through futures or swaps is a high-risk move. This step will likely reduce volatility in the USD/CNY pair, making it appealing to sell options. Strategies such as selling out-of-the-money USD/CNY calls could become more profitable since the central bank is aiming to set a ceiling on the exchange rate. Collecting premiums might be better than betting on major price shifts. This firm stance follows a lower-than-expected trade surplus in July 2025 and ongoing foreign investment outflows in the second quarter. The strong reference rate is a clear effort to stabilize the yuan and improve sentiment. It indicates a commitment to stability while other stimulus efforts take effect.

Interventions And Strategies

We’ve seen this approach before, especially during the slowdown in late 2023 when the PBOC consistently set a stronger yuan than expected to counter depreciation. Such interventions can last for weeks or months, which can be tough for speculators. It’s not wise to go against the central bank at this time. The liquidity injection shows the bank is carefully balancing support for the currency with ensuring enough cash flow in the domestic economy. They are not tightening internal policy; rather, they are managing the yuan’s external value. Traders shouldn’t confuse the strong reference rate with a shift to higher domestic interest rates. Over the next few weeks, the safest approach will be to respect the ceiling the PBOC is establishing. We should consider range-bound strategies and be careful with trades that depend on substantial yuan depreciation. Positions should be handled cautiously, as the bank has shown a clear intent to intervene. Create your live VT Markets account and start trading now.

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