The People’s Bank of China (PBOC) is China’s central bank. It regulates the yuan, also known as the renminbi (RMB), by controlling a daily midpoint. The PBOC uses a managed floating exchange rate system, which allows the yuan’s value to change within a specific range around a central rate. Currently, this range is set at +/- 2%. Today, the PBOC set the USD/CNY reference rate at 7.1128. This rate is slightly stronger than the estimated rate of 7.1174 and matches the previous rate of 7.1128.

Liquidity Operations

The PBOC also injected 354 billion yuan into the economy through 7-day reverse repos at a rate of 1.40%. This action provided a net liquidity boost of 124.3 billion yuan into the financial system. These actions indicate a clear policy of controlled depreciation. By fixing the yuan at a stronger value than expected, the PBOC aims to avoid a chaotic sell-off. The cash injection shows that the bank is committed to ensuring there is enough liquidity to support the domestic economy. This move responds to both local weakness and outside pressures. Recent figures from August 2025 revealed that industrial production is slowing. Meanwhile, the US Federal Reserve keeps interest rates around 4.75%, which strengthens the dollar and weakens the yuan. This careful balancing act aims to stimulate the economy while preventing capital flight. The strategy isn’t new; similar measures were taken throughout much of 2023 and 2024. During this time, the PBOC regularly fixed the yuan at strong rates while keeping domestic interest rates low to encourage growth. The current aim seems to be the same: maintain stability above all.

Opportunities for Traders

For derivative traders, this suggests that the implied volatility in USD/CNY options may be too high in the short term. The central bank is working to avoid large price swings, making range-bound trading strategies, like selling strangles, potentially attractive. Essentially, we’re betting on the PBOC’s ability to manage a slow and steady decline of the currency. Given the interest rate gaps between the US and China, the yuan is likely to weaken in the medium term. This presents opportunities in forward markets, where traders might position for a gradual increase in USD/CNY over the next three to six months. It’s important to create trades that benefit from slow depreciation rather than a sharp decline. The main risk to this strategy is a sudden worsening in China’s economic data, like the upcoming Q3 GDP figures. If growth slows more than expected, authorities might have to change their approach and allow for a quicker depreciation to boost exports. We’ll be closely monitoring high-frequency data for any early signs of a significant slowdown. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now