The People's Bank of China announce the mid-point reference rate for the USD/CNY a few moments after 0115GMT.

I was asked yesterday how the PBOC sets the mid-point for the USD/CNY each day and if the rate can be estimated ahead of time.

There are two answers, and I'll cut the chase initially with answer #1.

1. Don't even think about trying to estimate the rate at present. We do have an idea of how the PBOC sets the rate each day (I'll get to this), but at the moment the yuan is being devalued by the bank as a policy decision and the normal rules do not apply. They will again, but not at present.

BTW, in saying the PBOC is devaluing the yuan as a policy matter it does not mean we will keep seeing big devaluations each and every day. There will be wiggles along the way. My lines into the Chinese Politburo are not great (OK, non-existent) so each day's fix rate is a mystery to me ahead of time.

2. The PBOC implemented a new procedure for setting the mid-point in August of 2015. No one outside the bank knows the procedure exactly, but they have given guidelines. I'll just repeat again that this irrelevant at present (see above paragraph).

In setting the mid-point rate the bank 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 August 2015 they paid minimal regards to this)
  • How the USD has moved since the previous day's USD/CNY

So, if the USD/CNY rises during the China session and the USD rises generally during the 'overnight' then its reasonable to expect a higher USD/CNY fix the next day.


I hope this helps.