The People’s Bank of China (PBOC) sets the daily midpoint of the yuan, which is also called renminbi or RMB. China’s central bank uses a managed floating exchange rate system. This permits the yuan’s value to fluctuate within a certain range around a central reference rate, or “midpoint,” which is currently set at +/- 2%.
Setting The Midpoint
Each morning, the PBOC establishes a midpoint for the yuan against a basket of currencies, primarily including the US dollar. This setting considers factors such as market supply and demand, economic indicators, and international currency market changes. This midpoint then acts as a reference for that day’s trading.
The yuan is permitted to move within a set range of +/- 2% around the midpoint, meaning its daily appreciation or depreciation cannot exceed this limit. The PBOC can change this trading band based on economic conditions. When the yuan’s value nears the band limit or shows excessive volatility, the PBOC may intervene by buying or selling yuan. This intervention aims to stabilise the currency, ensuring a controlled adjustment of its value.
Given the expected USD/CNY reference rate of 7.1670, we are seeing the People’s Bank of China continue its pattern of setting a midpoint that is stronger than market estimates. This signals an ongoing effort to temper yuan depreciation amid persistent economic pressures. Traders should interpret this as a sign that authorities will not allow for a rapid, uncontrolled weakening of the currency.
This stance is familiar, as we saw similar management throughout 2023 and 2024 when China’s post-pandemic recovery faltered and the property sector crisis deepened. For instance, China’s trade surplus for July 2025 was reported at $70.6 billion, below forecasts, reinforcing the view that the economy still requires support. The PBOC’s consistent strong fixes during that earlier period established a clear playbook for supporting the yuan.
Strategy For Traders
For options traders, this managed stability suggests that implied volatility on USD/CNY may be overpriced. With the central bank placing a soft cap on the exchange rate’s ascent, selling out-of-the-money USD/CNY call options could be a viable strategy to collect premium. The repeated interventions limit the potential for sharp upside breakouts, making such positions less risky than in a freely floating currency.
The key mechanism to watch is the +/- 2% trading band around the daily midpoint. If the spot rate continues to trade near the weak end of this band, it indicates sustained depreciation pressure which the PBOC is actively leaning against. This consistent action provides a degree of predictability, favoring strategies that bet on the yuan remaining within its managed range in the short term.
