PBOC sets USD/CNY reference rate at 6.7521 vs. 6.7580 previous

On Friday, the People's Bank of China (PBOC) announced the USD/CNY central rate for the trading session at 6.7521, a slight decrease from the previous day's rate of 6.7580, and the estimated 6.7065. The primary objectives of China's central bank are to maintain price stability, including exchange rate stability, and foster economic growth.

The PBOC, owned by the state, is not considered autonomous and is influenced by the Chinese Communist Party (CCP) Committee Secretary, often held by the same individual as the governor. Unlike Western economies, the PBOC utilizes a broader range of monetary policy instruments such as Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio to achieve its goals.

The Loan Prime Rate, China's benchmark interest rate, directly impacts loan and mortgage rates, as well as savings interest. A change in the LPR can also influence the Chinese Renminbi's exchange rate. Despite having only 19 private banks, China's financial system is primarily state-dominated. The introduction of fully capitalized domestic lenders into the state-financed financial sector in 2014 marked a significant shift.

The AUD/USD pair has shown a positive bias for two days, trading above 0.7100 due to softer US bond yields keeping US Dollar bulls on the back foot. Meanwhile, Japan's core consumer inflation held near the Bank of Japan's 2% target in August, leading to some bids in USD/JPY. Gold also showed a positive trend, holding above $4,350 in the Asian session.

The Bank of Japan's monetary policy meeting, scheduled for the same day, is of particular interest as markets await confirmation of a potential hawkish shift that has supported the Japanese Yen recovery.