PBOC is expected to set the USD/CNY reference rate at 6.9849 – Reuters estimate

Setting of USD/CNY Reference Rate and Its Impact

The People's Bank of China (PBOC) is set to determine the USD/CNY reference rate at approximately 6.9849, a figure that is highly scrutinized in Asian forex markets. China operates a managed floating exchange rate system, allowing the yuan to trade around this rate each day. The determination involves a variety of inputs like the previous day's closing prices and movements in major currencies, particularly the USD. Once set, USD/CNY can trade freely within this prescribed band, although the PBOC may intervene if the market pushes the currency to the edges of this range. Such intervention could manifest as directional buying/selling of yuan or adjustments to liquidity. Thus, the daily fixing is viewed not merely as a technical reference, but rather a policy signal. A stronger rate indicates PBOC's intention to combat depreciation, while a weaker rate may signal acceptance of currency softness amid strong dollar trends and domestic economic challenges. In times of high global volatility, such as changes in U.S. rate expectations, this announcement provides valuable insight into China's currency objectives.