The USD/CNY fix was set at 7.0949, staying below 7.10 for the third day in a row. Nevertheless, the USD/CNH last traded at 7.1280, showing stability compared to previous levels, according to FX analysts at OCBC. Policymakers seem to be slowly guiding the renminbi towards a stronger position. Market talks suggest a possible intentional strengthening of the renminbi ahead of the Chinese Communist Party’s 4th plenum in Beijing from October 20th to 23rd. During this meeting, the Central Committee will present the next 5-year plan for 2026-2030, focusing on economic growth, security, innovation, and improving living standards.

Communique And Market Reactions

A communiqué from the meeting is expected on October 23rd, followed by the proposal for the 5-year plan a week later. The Central Economic Work Conference will finalize key policies in December ahead of the National People’s Congress meeting in March 2026. Ongoing US-China tensions over rare earth export controls and tariffs are limiting the renminbi’s potential decline. The market needs positive sentiment to bring spot rates in line with the fixings. Bullish momentum is fading, and the RSI is decreasing, indicating downside risks. Support levels are at 7.1150 and 7.08, while resistance is found at 7.1330, 7.1420, and 7.1460. The People’s Bank of China is signaling its preference for a stronger Yuan by keeping the daily fix below 7.10 for three consecutive days. This approach likely aims to project stability ahead of the 4th Plenum meeting next week. However, the spot market is hesitant, with USD/CNH trading higher than the fix, suggesting market caution. Recent economic data supports this push for a stronger Yuan. Last week, China’s Q3 GDP growth came in at 4.9%, just above expectations. This strengthens the idea that authorities have a stable economic foundation to manage the currency. In contrast, September CPI data in the United States showed persistent inflation at 3.5%, keeping the Federal Reserve on a cautious path.

Trading Strategies And Considerations

For traders, this highlights the tension between Chinese policy and US economic situations, with short-term risks for USD/CNH leaning downwards. It’s worth considering positions for potential Yuan strength, especially around the Plenum dates. Buying USD/CNH puts with strike prices targeting the 7.1150 or 7.08 support levels could be a good strategy to benefit from a drop. Uncertainty surrounding the Plenum’s communiqué, due on October 23rd, has increased short-term implied volatility in the options market. This raises the cost of buying options but also highlights the chance of a significant market move. For those with long USD/CNH positions, it’s a good time to consider hedging against risk. It’s important to remember that geopolitical issues can quickly change this policy direction, as seen during the trade disputes in 2018 and 2019 that caused the Yuan to lose value. Ongoing tensions over rare earth exports and tariffs mean that while the trend may lean towards a stronger Yuan for now, things could shift unexpectedly. Therefore, structuring trades with clear risk limits, such as put spreads, may be wiser than holding outright short positions. Create your live VT Markets account and start trading now.

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