The People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.0789 for the latest trading session, slightly changing from 7.0779 the day before. The PBOC aims to keep financial stability and support economic growth in China. They use various tools, such as the Medium-term Lending Facility and the Reserve Requirement Ratio. The PBOC is owned by the state of the People’s Republic of China and is heavily influenced by the Chinese Communist Party Committee Secretary. It supervises 19 private banks in China’s mostly state-controlled financial sector. This includes well-known digital banks like WeBank and MYbank.

Important Tools At The PBOC

Key tools that the PBOC uses include the Loan Prime Rate. This rate impacts loans, mortgages, and savings interest rates. Changes in this rate can affect the exchange rates of the Chinese Renminbi and influence international trade and economic stability. The People’s Bank of China has set the USD/CNY rate at 7.0789, which is slightly weaker for the yuan than expected. This minor adjustment indicates that authorities are likely okay with a gradual decrease in the yuan’s value to help the economy. We can expect more controlled weakness in the currency as we move toward the new year. This move is in line with recent economic data, which shows a mixed recovery. For example, China’s official manufacturing PMI for October 2025 fell to 49.8, showing a decline back into contraction after two months of growth. This may lead the PBOC to use the exchange rate to support exports and overall economic growth. For traders, this steady and controlled depreciation suggests strategies that benefit from low volatility. We believe that buying USD/CNY call options with due dates in the first quarter of 2026 could be a smart way to bet on a higher exchange rate. The slow pace of the depreciation should keep option costs relatively low for now.

Policy Divergence And Global Implications

It’s important to monitor the policy differences between the U.S. and China. While the PBOC is leaning toward easing measures, the U.S. Federal Reserve is expected to maintain interest rates above 4.5% into early 2026 to combat ongoing inflation. This substantial yield gap between U.S. and Chinese bonds continues to make holding dollars more attractive than holding yuan. As a result, we should consider the impact on commodity-linked currencies. The Australian dollar, especially, is sensitive to weaknesses in its biggest trading partner, China. We can reflect this outlook by looking at put options on the AUD/USD, since a weaker yuan often leads to a dip in the Aussie dollar. Create your live VT Markets account and start trading now.

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