Having tried to stabilise it since late September, a much higher USD/CNY fixing overnight suggests the People’s Bank of China is prepared to let market forces have a greater say. This is a dollar-positive story, in the opinion of economists at ING.

7.40 looks like the direction of travel for USD/CNY now

“USD/CNY has been pressing the upper limit of its +/- 2% daily trading range around the onshore fix. Notably, the People's Bank of China (PBoC) had been fixing USD/CNY flat near 7.11 since late September. But overnight, the PBoC has allowed an onshore fixing much higher at 7.1668. This suggests it will now allow market forces to play a greater role in setting the USD/CNY rate. 

“7.40 certainly looks like the direction of travel for USD/CNY now. A move in USD/CNY to 7.40 or higher should provide a supportive backdrop to the dollar over the coming weeks.”