PBOC is expected to set the USD/CNY reference rate at 6.7946 – Reuters estimate
The desk sees the PBOC's upcoming USD/CNY reference rate setting as a pivotal moment for the yuan, particularly in light of Goldman Sachs' assertion that the currency is currently undervalued by about 20%. Per the full note source, the anticipated fixing at 6.7946 will be closely monitored as it reflects the central bank's stance on currency stability amidst ongoing global economic pressures. With the PBOC's discretion in setting the midpoint based on various economic indicators, this fixing could signal their intent to manage depreciation risks or indicate a tolerance for a weaker yuan. The consensus among major firms suggests a range of targets that reflect varying views on the yuan's trajectory, with Goldman Sachs projecting a stronger CNY at 6.50 within a year, diverging from other estimates.
What the desk is arguing
The desk posits that the PBOC's reference rate setting will serve as a critical indicator of its monetary policy direction regarding the yuan. This comes as Goldman Sachs has raised its forecasts, suggesting a significant undervaluation of the yuan, which could lead to a stronger CNY in the future.
The anticipated fixing at 6.7946, as reported, is crucial as it will either reinforce or challenge market expectations about the PBOC's intervention strategy. The central bank's ability to influence the yuan's value through its daily fixing is a key element in managing capital flows and economic stability.
Where it sits in our coverage
Our consensus target for USD/CNY is 6.80, with a range reflecting diverse views across firms. Notable targets include: - goldman: 6.50 - jpmorgan: 6.75 - bofa: 6.90
This view aligns closely with goldman, which is at the lower end of the spectrum with a more bullish outlook on the yuan, while bofa holds a more bearish stance, indicating a potential divergence in market sentiment.
How other firms see it
Firms like goldman and jpmorgan are aligned in their bullish outlook on the yuan, suggesting a stronger currency ahead. In contrast, bofa takes a more cautious approach, anticipating continued pressure on the yuan.
Investors should also keep an eye on related pairs such as EUR/USD and AUD/CNY, as shifts in these currencies could reflect broader market sentiment influenced by the PBOC's policy decisions.
What the calendar says
...
Earlier: Goldman Sachs says yuan 20% undervalued, lifts forecasts to 6.50 in a year - The People’s Bank of China is due to set the daily USD/CNY reference rate at around 0115 GMT (2115 US Eastern time), a fixing that remains one of the most closely watched signals in Asian foreign exchange markets. China operates a managed floating exchange rate system, under which the renminbi (yuan) is allowed to trade within a prescribed band around a central reference rate, or midpoint, set each trading day by the PBOC. The current trading band permits the currency to move plus or minus 2% from the official midpoint during onshore trading hours.
Each morning, the PBOC determines the midpoint based on a range of inputs. These include the previous day’s closing price, movements in major currencies, particularly the US dollar, broader international FX conditions, and domestic economic considerations such as capital flows, growth momentum and financial stability objectives. The midpoint is not a purely mechanical calculation, allowing policymakers discretion to guide market expectations.
Once the midpoint is announced, onshore USD/CNY is free to trade within the allowable band. If market pressures push the yuan toward either edge of that range, the central bank may step in to smooth volatility. Intervention can take the form of direct buying or selling of yuan, adjustments to liquidity conditions, or guidance through state-owned banks.
As a result, the daily fixing is often interpreted as a policy signal rather than just a technical reference point. A stronger-than-expected CNY midpoint is typically read as a sign the PBOC is leaning against depreciation pressure, while a weaker fixing for the CNY can indicate tolerance for a softer currency, often in response to dollar strength or domestic economic headwinds. In periods of heightened global volatility, such as shifts in US rate expectations, trade tensions or capital flow pressures, the fixing takes on added significance.
For investors, it provides insight into Beijing’s currency priorities, balancing competitiveness, capital stability and financial market confidence. This article was written by Eamonn Sheridan at investinglive.com.
Sources & References
How we cover this story