Insights 
VT 
The People’s Bank of China (PBOC) manages the yuan using a floating exchange rate system. This system allows the yuan’s value to adjust within a “band” around a central reference rate, which currently uses a range of +/- 2%.
For the USD/CNY exchange rate, today’s central reference is set at 7.1916, against an expected value of 7.2057. The previous closing rate was recorded at 7.2103.
Monetary Operations
In its monetary operations, the PBOC has injected 135 billion yuan using 7-day reverse repos at an interest rate of 1.40%. With 43 billion yuan maturing, this results in a net liquidity injection of 92 billion yuan.
The People’s Bank of China has once again moved to guide the yuan by setting its daily reference point—or midpoint—stronger than traders were broadly anticipating. By fixing the rate at 7.1916 when expectations hovered near 7.2057, and with markets having closed the day before at 7.2103, there is a noticeable gap. It’s not marginal either—it points to a clear intention. When the central bank steers the midpoint away from broader market sentiment, it often signals discomfort with momentum in the spot market.
In practical terms, we read this as a quiet enforcement of boundaries. The 2% band on either side of the announced fix is plenty of room, but today’s signal was deliberate. When authorities consistently set the fix stronger than the market forecast, it’s meant to influence behaviour. Often traders respond by sitting on their hands or by repositioning toward mid-band levels, reducing directional bets on a sustained depreciation.
There’s more in the details. The liquidity injection—135 billion yuan via short-term repos—comes with a relatively low rate of 1.40%. This isn’t just a tap; it’s more than a nod to maintaining stability onshore. With only 43 billion maturing, the net addition of 92 billion tells us timing is intentional. Policymakers are managing timing as much as volume.
Market Intervention Strategy
What’s particularly notable is how the intervention seems two-pronged: communication through the fix, and pressure release through cash provision. Both happened concurrently, and that’s not coincidental. When volatility becomes uncomfortable or when forex flows destabilise domestic conditions, this combination becomes common.
So where to from here? The stronger-than-expected fix doesn’t point to a single-day message—it often sets the tone for the week. Any upward moves in spot USD/CNY should be watched closely against the fix the following day. Discrepancies that persist often invite further guidance, so we’ll need to assess reactions not just across spot FX, but also in onshore swap curves and broader dollar risk pricing.
The liquidity move also shifts the near-term funding picture. With cash pumped into the banking system and repo rates steady, institutions borrowing for short-term usage might face less incentive to unwind their long dollar holdings dramatically. But that doesn’t mean the carry becomes more attractive—it just levels the playing field temporarily.
Remember that domestic liquidity support, in this context, is less about expansion and more about assurance. With funding stable and FX signaling restraint, traders should not expect a sharp directional break to come without fresh external catalysts. The guiding hand was subtle, but it’s there. We’ll track how that plays out in forward points, and whether positioning begins to favour home currency steadying over the next few sessions.
