The People’s Bank of China utilises a counter-cyclical factor which is an adjustment to their daily fixing during periods of high volatility. This tool is used to maintain the relative stability of the yuan and is one of the two main deciding factors for the trajectory of the USDCNY pair.
Since July 2023, the usage of the counter-cyclical factor has been quite significant, and marked new highs in June and July this year, reflecting the PBOC pushing back strongly against significant depreciation pressure on the CNY. However, the depreciation pressure faded quickly in August as a weaker dollar led to a rally of Asian currencies including the CNY. As a result, we’ve seen the counter-cyclical factor fall to nearly zero, which indicates that the daily fixing is in line with the closing price of the previous trading day.
After over a year, the PBOC’s impact on the USDCNY pair has turned neutral for now. We expect use of the counter-cyclical factor to resume if necessary, but it looks like policymakers are comfortable with where USDCNY is trading, and indeed market reports are that they are seeking out research on the impact of a stronger CNY.
