The People’s Bank of China set its daily USD/CNY reference rate at 6.7889 on Wednesday, representing a marginal strengthening of the yuan compared to Tuesday’s fix of 6.7917. The move comes as a surprise to market watchers, with the fixing notably weaker than the 6.7480 level estimated by Reuters, indicating Chinese authorities are comfortable allowing more depreciation than analysts anticipated.
The wider-than-expected gap between the PBOC’s fix and the Reuters estimate suggests Beijing may be signaling tolerance for a softer yuan amid ongoing economic headwinds and potential capital outflow pressures. This discrepancy of over 400 pips between the actual fix and market expectations could trigger reassessment of yuan positioning ahead of the Asian trading session.
Traders should monitor whether this signals a shift in PBOC policy stance or simply reflects recent dollar strength globally. The fixing sets the boundary for daily yuan trading, which is allowed to fluctuate two percent either side of the reference rate.
FXnCO Insight
Yuan traders should prepare for increased volatility and potential further depreciation pressure if the PBOC continues setting fixes significantly weaker than market expectations.
Source: FXStreet