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PBOC Sets USD/CNY Mid-Point Above Recent Levels But Yuan Bias Widens To Record


After a brief bout of slightly heightened volatility, USD/CNH trades at CNH7.2659, a touch lower on the day. Spot USD/CNY re-opened on a firmer footing and sits at CNY7.2451, up ~160 pips on the day.

  • The PBOC set the daily yuan reference rate at CNY7.1188 in the strongest show of redback appreciation bias on record. The fixing fell 950 pips below the sell-side estimate, widening from yesterday's -558 error term by a notable margin.
  • Still, the actual reference rate deviated to the upside from the recent string of fixing outcomes clustered around the CNY7.1100 mark. Although the deviation wasn't too large, some may have interpreted it as a sign of the PBOC's limited discomfort with depreciation pressures.
  • Note that in the wake of today's fixing, the ceiling of USD/CNY permitted trading band is located at CNY7.2612. Offshore yuan operates beyond that level, even as onshore remains within the PBOC's tolerance band.
  • The People's Bank also kept its 1-Year and 5-Year Loan Prime Rates unchanged at 3.65% and 4.30% respectively, in line with expectations, amid concerns that renewed monetary easing could exacerbate redback weakness.

Fig. 1: USD/CNH vs. USD/CNY Trading Band

Source: MNI - Market News/Bloomberg

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