PBOC sets USD/ CNY reference rate for today at 6.8502 (vs. estimate at 6.8138)

The desk interprets the PBOC's recent USD/CNY reference rate setting at 6.8502, significantly above the market estimate of 6.8138, as a signal of ongoing yuan weakness. Per the full note from Eamonn Sheridan at investinglive.com, the PBOC's allowance for a +/- 2% fluctuation around this rate suggests a controlled depreciation strategy amid economic pressures. Additionally, the central bank's injection of 500 million yuan via 7-day reverse repos at an unchanged rate of 1.4% indicates a liquidity support measure aimed at stabilizing the currency. This aligns with our view that the yuan may continue to face downward pressure in the near term as the PBOC navigates economic challenges.

What the desk is arguing

The desk frames this as a clear indication of the PBOC's intent to manage yuan depreciation amid economic headwinds. The reference rate set at 6.8502, which is notably higher than the market's expectation, reflects a strategic response to current market dynamics.

The PBOC's allowance for the yuan to fluctuate within a +/- 2% range around this reference rate reinforces the notion of a managed currency environment. The injection of 500 million yuan via reverse repos further emphasizes the central bank's commitment to ensuring liquidity and stability in the market.

Where it sits in our coverage

Our consensus target for USD/CNY is set at 6.95, with a range from 6.85 to 7.05. Notable firm targets include: - jpmorgan: 6.90 - bofa: 6.85 - citi: 7.00

This view is slightly above the lower bound of the consensus range, suggesting that the desk anticipates further weakness in the yuan compared to the broader market expectations.

How other firms see it

Firms aligned with a bearish outlook on the yuan include jpmorgan and citi, both projecting targets above the current reference rate. Conversely, bofa holds a more optimistic view, predicting a stronger yuan with a target at the lower end of the spectrum.

Watch for movements in related currency pairs such as EUR/USD, which may reflect broader market sentiment influenced by the PBOC's actions. Additionally, the USD/JPY trajectory could provide insights into the spillover effects of Chinese monetary policy.

What the calendar says

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PBOC sets USD/ CNY reference rate for today at 6.8502 (vs. estimate at 6.8138)

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PBOC sets USD/ CNY reference rate for today at 6.8502 (vs. estimate at 6.8138)

What the desk is arguing

Where it sits in our coverage

How other firms see it

What the calendar says

Sources & References

Primary source