The People’s Bank of China (PBOC) has announced a USD/CNY reference rate of 7.1161, compared to the expected 7.1551. This managed floating exchange rate system allows the yuan to vary within a set range of +/- 2% around this midpoint. This new rate is the strongest since November 6 last year and is lower than the previous close of 7.1666. The PBOC has also injected 288.4 billion yuan through 7-day reverse repos at a rate of 1.40%. With 266.5 billion yuan maturing today, this results in a net injection of 21.9 billion yuan.

Yuan Fixing Announcement

Today’s yuan fixing signals that policymakers intend to stop the currency’s decline. The rate is much stronger than market expectations, indicating clear support for the yuan. This suggests that betting on a weaker yuan or holding long positions in USD/CNY is now a risky move. This comes after China reported a surprising trade surplus of $89 billion for July 2025, a figure that should support the currency. However, the yuan has still weakened due to concerns about the property sector and slowing domestic demand. The PBOC is now stepping in to counter these negative feelings and align the currency with strong trade data. This situation is reminiscent of late 2023 when the central bank defended the 7.30 level against the dollar, creating a stable ceiling for months. We might now be seeing the formation of a new, lower ceiling around 7.15-7.20. This managed stability could reduce volatility in the currency pair, making some trading strategies more appealing.

Impacts on Derivatives and Goods

For traders in derivatives, this means that selling short-dated USD/CNY call options could be a smart strategy, as the central bank is limiting the dollar’s potential rise. The yuan’s implied volatility, which hit a six-month peak of 4.8% last week, may now be overvalued due to the bank’s intervention. A more cautious approach would be to use call spreads to bet on limited upside for the dollar. Strengthening the yuan will likely affect Chinese stocks and global commodities. A stronger currency makes Chinese goods costlier abroad, which could hurt export-heavy stocks. On the other hand, it boosts China’s ability to purchase raw materials, potentially supporting commodities like copper and iron ore that have seen price declines recently. Create your live VT Markets account and start trading now.

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