The announcement of the CFETS index not only allows China to publish its own benchmark currency index (perhaps the start of an attempt to eventually rival the USD Index), but also reinforces the view that the authorities are placing less emphasis on USDCNY movements and more on changes in the CNY relative to the country's main trading partners. 

The fact that the estimate of the CFETS NEER index puts its slightly more than 1% higher compared with the end of last year, after reaching a peak of 4.07% on 8 July 2015, suggests that China is indeed attempting to maintain relative stability in the NEER by allowing USDCNY to move higher.

Marking to events, 11 December 2015, the Chinese authorities' determination to prevent further CNY weakness appears to have waned recently, with USDCNY fixings moving consistently higher. Adhering to the new CNY NEER basket allows the authorities to avoid CNY appreciation at a time of expected broad USD appreciation. This is consistent with a rise in USDCNY. 

Indeed, it is believed that some of the depreciation in CNY/CNH recently likely reflected a degree of targeted pre-emption of general USD strength ahead of expected Fed rate hikes. Moreover, focusing on the new basket may explain limited FX intervention recently and greater tolerance for CNY spot weakness as long as it does not diverge significantly from the NEER basket.