USD/CNH has fallen below 7.0700 due to weak domestic demand in China. Recent trade data for November reveals a record annual trade surplus of $1,182 billion, but the surplus with the US is at a five-year low of $435 billion. In November, China’s exports grew by 5.9% year-on-year, beating the expected 4.0%. This follows a decline of 1.1% in October. However, imports only increased by 1.9% year-on-year, falling short of the anticipated 3.0%. This suggests continued weak domestic demand.

Central Economic Work Conference

The Central Economic Work Conference is coming up, where GDP targets and plans for stimulus in 2026 will be discussed. Before this meeting, the Politburo emphasized the importance of boosting domestic demand, adopting a proactive fiscal policy, and maintaining a moderately loose monetary strategy. A stronger yuan could encourage consumer spending by making imports cheaper, which would increase disposable income. Since the yuan is still undervalued, this appreciation might not significantly affect the manufacturing sector. The trend for USD/CNH continues to decline. With USD/CNH now under 7.0700, the key issue is China’s weak domestic demand. November trade data shows exports are improving, but import growth is much weaker than expected, indicating sluggish spending within the country. This weakness is also supported by other recent data. November’s Consumer Price Index (CPI) was only 0.5%, indicating very low inflation. Retail sales grew just 2.8%, reinforcing the idea that consumers in China are not spending freely.

Planning for 2026 Stimulus

The upcoming Central Economic Work Conference is expected to provide insights into plans for 2026. The People’s Bank of China has already cut key lending rates twice this year to stimulate the economy. This conference will reveal if they plan to increase fiscal spending to boost domestic demand as indicated. Given this outlook, betting on a continued decline in USD/CNH seems wise. A stronger currency would lower import costs and benefit consumers. One approach is to consider put options on the currency pair, allowing us to profit from a stronger yuan while limiting our risk. We are focusing on contracts expiring in late January or February 2026. This period should be enough to react to the stimulus plans announced at the conference. Our aim is to take advantage of the ongoing downward trend into the new year. Create your live VT Markets account and start trading now.

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