KEY POINTS
• China’s central parity rate for the yuan strengthened by 90 pips against the dollar to 6.7399 on Monday.
• The rate is determined from a weighted average of prices quoted by market makers before the opening of the interbank market.
• The yuan is permitted to trade within a two per cent range above or below the daily central parity rate in China’s spot foreign exchange market.
MAIN STORY
China’s yuan strengthened against the U.S. dollar on Monday, with its central parity rate rising 90 pips to 6.7399, according to the China Foreign Exchange Trade System.
The central parity rate serves as the reference point for trading the yuan in China’s spot foreign exchange market, where the currency is allowed to move by up to two per cent in either direction from the daily benchmark.
The daily reference rate is established before the interbank market opens, based on a weighted average of prices submitted by market makers.
The movement means the yuan’s official reference value against the dollar was set at a stronger level than in the previous trading session.
THE ISSUES
- The central parity rate provides a daily reference for yuan trading and sets the basis around which movements in the spot foreign exchange market are allowed.
- The two per cent trading band gives the yuan room to fluctuate during the session while keeping movements within the prescribed range around the central parity rate.
- The use of market maker quotations in determining the benchmark means the daily reference rate reflects a weighted assessment of prevailing market prices before trading begins.
WHAT’S NEXT
Trading in the spot foreign exchange market will take place around Monday’s central parity rate, with the yuan permitted to move within the prescribed two per cent band during the trading day.
BOTTOM LINE
The yuan opened the week with a stronger central parity rate against the dollar, while China’s exchange rate system continues to allow daily market movements within a defined range around the benchmark.
