PBOC is expected to set the USD/CNY reference rate at 6.6978 – Reuters estimate

Significance of PBOC's USD/CNY Reference Rate Setting

The People's Bank of China is set to determine the USD/CNY reference rate daily, a key focal point for Asian forex markets. The expected rate for January 15, 2023, is around 6.6978, to be announced at 0115 GMT (2115 US Eastern Time). This reference rate serves as the midpoint within which the renminbi is allowed to trade +/- 2%. The determination of this rate takes into account previous closing prices, movements of major currencies, international FX conditions, and domestic economic factors. This setup permits the central bank discretion in guiding market expectations. Following the announcement, USD/CNY can trade freely within the defined range, but the PBOC may intervene to manage volatility if pressures push the yuan toward either extreme. Interventions may include direct buying or selling of yuan or liquidity adjustments. Consequently, the daily fixing is not just a technical reference but often seen as a policy signal. A stronger midpoint suggests PBOC’s resistance to depreciation pressures, while a weaker setting may signal tolerance for a softer yuan, in response to dollar strength or domestic economic challenges. In times of heightened global volatility, such as shifts in US rate expectations or trade tensions, this fixing takes on added significance. For investors, this setting provides insights into Beijing's currency priorities and balances competitiveness with financial market stability.