The People’s Bank of China announce the mid-point reference rate for the yuan at 0115GMT (or a few moments later, usually)

  • The USD/CNY can then trade plus or minus 2% around this mid point.

On Tuesday the rate was set at 6.2298, a 1.9% devaluation from the previous day, the biggest move ever

On Wednesday the rate was set a further devaluation of 6.3306 (a 1.6% devaluation)

Also on Wednesday, right after the setting the USD/CNY opened and traded higher, and then was hit lower in the afternoon China trading ... its thought the People’s Bank of China intervened to sell USD/CNY heavily and drive the rate down:

The PBOC implemented a new procedure for setting the mid-point on Tuesday. No-one outside the PBOC knows what it is exactly, but they did indicate what they will have regard to in the setting now:

  • Where the USD/CNY closed the previous day (i.e. the PBOC is paying attention to market movements now, prior to Tuesday they paid minimal regards to this)
  • How the USD has moved since the previous day's USD/CNY

Wednesday's USD/CNY close was 6.3858, which is around 0.9% weaker (for the yuan) than Wednesday's 'fix'. This is the starting point.

Overnight (for China) FX moves were a slightly weaker USD, which should see a few points lopped off that 6.3858 starting point. Putting a number on how many exactly is difficult, but Westpac (for example) a saying 6.3750 is a likely area.

-

The risk to this is that the PBOC is still tweaking its procedure, or makes bigger changes today. It would seem to be early days yet for the new rate setting regime.

Another risk is the PBOC USD/CNY intervention yesterday afternoon ... they may want USD/CNY a little lower if this is indicative.

-

This article is somewhat dated now, the PBOC has moved to assessing the yuan against a basket of currencies. But the articles still makes some points to be aware of.

In each day's setting the PBOC will have regard to:

  • Where the USD/CNY closed the previous day (i.e. the PBOC is paying attention to market movements now, prior to Tuesday they paid minimal regards to this)
  • How the USD has moved since the previous day's USD/CNY
  • How the CNY has moved in regards to other currencies (unfortunately we do not have a clear picture of the composition and weights in this basket, but you can be sure the USD is still the most important weighting).