The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as renminbi or RMB. This is part of a system that allows the currency to float within a specific range, or “band,” around this reference point. The allowed fluctuation is +/- 2%. Today, the PBOC set the USD/CNY midpoint at 7.1062. This is lower than the market’s estimate of 7.1359, and the previous closing rate was 7.1250.

The Central Bank’s Message

Today’s midpoint is significantly stronger than expected, signaling the PBOC’s intent. They are showing that they won’t tolerate rapid depreciation of the yuan. This move should be seen as the central bank taking steps to manage market expectations. As a result, selling call options on the USD/CNY pair looks like a smart strategy for the coming weeks. The central bank’s intervention limits the potential for the dollar to rise against the yuan. This managed stability lowers implied volatility, making call option premiums appear high. This decision is backed by recent data showing China’s industrial production for August 2025 grew by 4.5% year-over-year, surpassing predictions. Additionally, reports suggest that capital outflows, a major concern in 2024, have slowed significantly in the third quarter of 2025. The PBOC likely believes it has the support needed to defend the currency more forcibly now. This situation feels different from the market shocks during the 2015 devaluation. Back then, central bank actions created uncertainty and volatility. Today’s actions aim to reduce volatility and promote a sense of control and stability for the currency.

Reducing Currency Risk

The perceived drop in currency risk makes carry trades with the yuan more appealing. The one-month offshore yuan (CNH) implied volatility has fallen to 4.5% today, lowering the cost of hedging. This stability is vital for traders wanting to profit from interest rate differences without facing sudden currency shifts. However, we need to be alert for any signs that this policy may not last. A decline in the next purchasing managers’ index (PMI) or a rise in trade tensions could lead the PBOC to change its approach. Therefore, it would be wise to hold some inexpensive, long-dated USD/CNY call options as a safety measure against a possible policy shift. Create your live VT Markets account and start trading now.

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