An example of how “money market operations” help central banks manage movement of their currency.
Offshore Yuan pulled back from an all-time low in Asia after PBOC intervened by selling yuan denominated bills. Selling in offshore yuan has abated since then. USDCNH now at 7.07 after moving past 7.13.
When PBOC sells yuan bills, it squeezes/absorbs the yuan liquidity making it difficult/expensive for short sellers to borrow yuan and short sell it in exchange for USD. Short selling in yuan is done by going long in USDCNH pair. Also, setting the mid-point of USDCNY at 6.9683 helped ease bearish bets on CNY as it was still lower than expectations. This is still the highest mid-point level for USDCNY since May 2008 .
Such a move is expected to help all Asian FX including Rupee