Latest data from the China Foreign Exchange Trade System shows that on July 17, 2026, the CNY/USD central parity rate stood at 6.7934, down 25 basis points from the previous trading day, marking the first time this year the yuan has clearly broken below the 6.8 psychological threshold. On the same day, the central bank conducted 450.5 billion yuan in 7-day reverse repos, net injecting 430.5 billion yuan after accounting for maturing operations, with the operation rate unchanged at 1.40%. What do these two signals combined mean?
The Overlay Effect of Exchange Rate Break and Liquidity Easing
The number 6.7934 itself is not extreme, but combined with the central bank's continued large-scale net injections, market expectations for short-term yuan depreciation are strengthening. Over the past three months, the yuan's central parity has gradually declined from around 6.5, accumulating a drop of over 4%. For textile foreign trade enterprises, every 1% depreciation in the exchange rate theoretically increases export profits by about 1.2 percentage points—but only if order prices can be adjusted synchronously and import costs remain unaffected.
In reality, the textile industry relies heavily on imported raw materials such as cotton, chemical fiber monomers, and high-end dyes and auxiliaries. Yuan depreciation directly increases these procurement costs. For example, imported cotton is priced in USD; every 1% depreciation adds about 300 yuan per ton. If export orders are priced in USD but buyers squeeze prices, companies face a "squeeze from both sides" on profit margins.
Policy Signals from Central Bank Operations
On July 17, the central bank's reverse repo rate remained unchanged at 1.40%, but the net injection of 430.5 billion yuan was far above routine levels. This indicates the central bank is maintaining rate stability while using quantity tools to inject ample liquidity, aiming to ease interbank funding pressures and support real economy financing. For textile companies, ample liquidity means lending rates are likely to stay low, but imported inflation from yuan depreciation may gradually pass through to final product prices.
Notably, the reverse repo rate has remained unchanged for several months, and the MLF rate also stays low. This combination of "stable rates, loose money" actually provides greater flexibility for the yuan exchange rate—the central bank is not trying to forcefully intervene but allowing market supply and demand to play a larger role. Textile companies must realize that two-way exchange rate fluctuations will become the norm, and the risk of betting on one direction is increasing.
Industry Transmission Chain: From Exchange Rate to Orders to Inventory
Feedback from major textile clusters such as Keqiao and Shengze shows some recent recovery in foreign trade orders, with some companies reporting a 15% to 20% month-on-month increase in inquiries. However, this recovery is more driven by buyers' anticipatory purchases due to yuan depreciation rather than a substantive rebound in end-consumer demand. Once the exchange rate stabilizes or even rebounds, this "front-running" effect may quickly fade.
More importantly, inventory management becomes critical. Under yuan depreciation expectations, the holding cost of imported raw materials rises, prompting companies to reduce raw material inventories and accelerate turnover. However, the delivery cycle for export orders is typically 45 to 60 days, during which exchange rate fluctuations can completely erode order profits. Therefore, relying solely on betting on exchange rates is no longer sustainable.