The People’s Bank of China (PBOC) sets a daily midpoint for the yuan (renminbi). It follows a managed floating exchange rate, which allows the yuan to vary within a +/- 2% range around a central reference rate. Today, the USD/CNY reference rate is 7.1475. The last closing rate was 7.1780, and the estimate was 7.1771. The PBOC injected 84.7 billion yuan through 7-day reverse repos at a rate of 1.40%. With 34 billion yuan maturing today, this resulted in a net injection of 50.7 billion yuan. This morning, the PBOC set the yuan’s daily midpoint at 7.1475 per US dollar. This level is stronger than both market estimates and the previous closing rate of 7.1780. The difference between the fix and the market close indicates that the authorities aim to show a stronger currency, potentially signaling against further depreciation. Beijing operates under a managed float regime, allowing the currency to change within a defined 2% band. While this setup permits some market pricing, the central bank still maintains significant control, especially when market sentiment swings too far in one direction. The PBOC also conducted a liquidity operation, adding 84.7 billion yuan to the market through 7-day reverse repos at a steady rate of 1.40%. With only 34 billion yuan maturing, this means a net injection of 50.7 billion yuan. Such liquidity measures usually suggest either alleviating short-term stress or preparing for future funding needs. This approach shows that the central bank is managing the currency closely, aiming for stability instead of letting it drift freely. The steady repo operations and the calculated reference rate suggest a coordinated effort to maintain balance without drastically altering market behavior. We noticed the difference between the fixed rate and the market close is not random. The market had expected a higher rate. By lowering the midpoint, policymakers signaled their unwillingness to accept further depreciation for now, often reflecting concerns about capital outflows or inflation. In the coming weeks, as data and yields change, especially compared to domestic rates, we might see more subtle interventions like this one. When dealing with derivatives, it’s wise to focus on short-term liquidity changes rather than expecting major directional shifts. The funding situation indicates stability rather than tightening, and the unchanged repo rate backs this idea. Regarding the midpoint expectations, there’s a growing sensitivity about how much depreciation can occur before the fixing rate acts as a correction. The margin for depreciation is thin. Additionally, spread pricing now reflects awareness of potential surprises in the daily fix, which is an efficient but careful way to consider policy actions in market pricing. The net injection rather than a withdrawal suggests increasing concerns about possible market disruptions or tightness—especially with month-end funding pressures. This also reflects an effort to keep repo rates stable. Moving forward, it’s essential to observe how the gap between fixed and market rates develops, particularly in short-term forward pricing. If the fix continues to be lower than expected, it may indicate an intention to subtly guide market sentiment rather than impose sudden changes. The size of the repo operation was reasonable, but its timing relative to the fix adds more significance than usual.

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