USD/CNY rebounds as PBOC scraps FX risk reserve ratio to cool yuan rally – recap

Summary:

• PBOC cut FX risk reserve ratio to 0% from 20%, effective March 2

• Move reduces cost of betting against yuan via forwards

• USD/CNY midpoint held at 6.9228, defying expectations for fresh lows

• USD/CNH rebounded as traders pared yuan-long positions

• Analysts see USD/CNY stabilising in 6.90–6.95 range

China’s central bank has signalled that the rapid appreciation in the yuan may have gone far enough for now, prompting traders to reassess bullish positions.

The People’s Bank of China (PBOC) announced it would scrap the 20% foreign-exchange risk reserve requirement for forward FX sales, cutting it to zero effective March 2. The measure reverses a September 2022 tightening that was originally introduced to stem sharp yuan depreciation and capital outflows.

By removing the reserve requirement, effectively a “speed bump” on forward dollar purchases, the PBOC has lowered the cost of shorting the yuan and buying dollars via forwards. While officials framed the decision as supporting enterprises in managing exchange-rate risks, the timing suggests policymakers are also keen to temper one-way appreciation pressure after the currency recently climbed to near three-year highs against a softer dollar.

In a further signal, the PBOC held the daily USD/CNY midpoint at 6.9228, resisting expectations for another fresh 33-month low. The steady fix, combined with stronger USD-positive damping, is seen as establishing a near-term floor around Thursday’s trough near 6.8310.

The immediate market response saw USD/CNH rebound, with traders trimming crowded yuan-long bets. Analysts expect USD/CNY to rise moderately before stabilising in a 6.9000–6.9500 range, reflecting a policy stance aimed at smoothing gains rather than reversing direction outright.

Chart signals also point to fading downside momentum in USD/CNY. A long-tailed doji formation suggested exhaustion in the recent decline, while a break above the 6.8868 Bollinger channel ceiling would reinforce the case for a corrective bounce toward the 21-day moving average near 6.9235 and potentially toward the upper channel around 6.9560.

Over the past decade, the PBOC has repeatedly adjusted the FX risk reserve ratio to manage two-way currency pressures. The latest move fits that pattern: not an attempt to weaken the yuan materially, but a calibrated step to curb excessive strength and damp volatility.