Insights 
VT 
The People’s Bank of China (PBOC) sets the daily midpoint of the yuan, or renminbi (RMB), under a managed floating exchange rate system. This system allows the yuan’s value to fluctuate within a certain range, or “band,” around a central reference rate.
The current trading band is set at +/- 2%. Each morning, the PBOC determines a midpoint for the yuan against a basket of currencies, mainly the US dollar. It considers market supply and demand, economic indicators, and currency market fluctuations to set this midpoint.
Yuan Exchange Rate Management
The PBOC allows the yuan to move within the specified range around the midpoint, which is currently +/- 2%. This permits the yuan to appreciate or depreciate by up to 2% from the midpoint on any given day. The PBOC can adjust this range based on economic conditions and policy goals.
If the yuan’s value nears the band’s limit or shows significant volatility, the PBOC may intervene by buying or selling the yuan to stabilise its value. This intervention ensures a controlled and gradual adjustment of the yuan’s value, maintaining market stability.
The current framework, while designed to inject a measure of flexibility into yuan pricing, still reflects a tightly managed approach. This policy, rooted in the daily setting of a central rate by the PBOC, effectively dictates the direction of onshore exchange rate expectations. The 2% band provides some breathing room, but ultimately, currency traders are responding not only to market signals but also to inferred guidance from the monetary authorities.
By establishing the midpoint each morning, the PBOC is signalling its stance on external and domestic pressures—particularly shifts in dollar strength, local credit data, export performance, and sentiment from regional central banks. As this midpoint consistently deviates from offshore pricing, it reveals how the central authority is engineering the price to either curb volatility or guide capital flows more assertively.
Balancing Export Competitiveness
With this in mind, we’re seeing that recent adjustments in the daily fix are positioned to balance export competitiveness against the persistent drag from capital outflow concerns. This matters immediately, because wide intraday moves near the upper or lower bounds often precede well-timed intervention, which can include liquidity operations or open market sales of foreign reserves.
Examining Chen’s comments from earlier this week, there’s a pattern of reinforcing stability while tolerating gradual repricing rather than fixed directional bias. What emerges is a preference to manage expectations rather than completely resist pressure from offshore markets. Liu, on the other hand, pointed out that more consistent selling of dollars at key levels illustrates the preference to smooth disorderly moves rather than reverse them altogether.
From our point of view, these signals suggest that any abrupt movements well outside of this band—either due to external rate surprises or internal policy shifts—will be absorbed gradually, not ignored. This creates opportunities, but also tightens timing for those positioned on shorter durations.
Therefore, attention should shift towards any slight deviations in the official fix, especially where they diverge from prior market closes. Also, volumes during thinner overnight sessions have coincided with stronger central bank footprint, particularly in the forward markets and swap arrangements—elements often overlooked but now offering clearer clues.
Be mindful: interventions will be more reactive when sentiment overshoots fundamentals. Price action that diverges sharply from the fix, especially in the latter half of the local session, tends to hint at forthcoming responses.
Lastly, although Kuang did not overtly specify new measures, the difference between stated policy language and the subsequent silent adjustments in the forward points cannot be dismissed. We’ve noticed this divergence widens briefly ahead of any adjustments to the official band—suggesting that signals are being planted softly ahead of hard policy moves.
These aren’t just quirks of central bank behaviour—they’re data points that help define tomorrow’s price structure. When observed carefully, they narrow the range of outcomes, making positioning more effective rather than speculative.
