China’s financial institutions are working hard to elevate the renminbi (RMB) on the global stage, especially as the U.S. dollar weakened in early 2025. The People’s Bank of China (PBOC) is considering introducing an offshore RMB-based stablecoin. This would provide a reliable option for international trade and finance. This move is part of China’s broader plan to lessen dependence on the U.S. dollar and enhance its presence in global capital markets. A report from Chinese media indicated a growing positive sentiment for the RMB, which may also affect regional currencies like the Australian dollar (AUD) and South Korean won (KRW).

Challenge to Dollar Dominance

These initiatives are designed to challenge the U.S. dollar’s hold on global market liquidity. The dollar’s notable drop in the first half of this year suggests a declining outlook for it. This might be a good time to consider buying put options on the U.S. Dollar Index (DXY) or taking short positions through futures contracts. The DXY has dropped over 6% so far in 2025, and China’s actions could speed up this decline in the coming weeks. The focus is on the offshore yuan, so we expect the USD/CNH pair to reach lower levels as sentiment for the RMB improves. We can prepare by selling USD/CNH futures or buying call options on the CNH. The People’s Bank of China has been consistently setting its daily currency fixings stronger than market expectations throughout August 2025.

Potential for Volatility

This situation is likely to cause more currency volatility, particularly as the market considers the possibility of a major central bank launching a stablecoin. We could buy straddles on pairs like AUD/USD or USD/CNH to benefit from significant price swings in either direction. For context, we can recall the market chaos triggered by the Swiss National Bank’s decision to unpeg the franc in 2015, which shows the potential for sudden, sharp movements. Since China is Australia’s biggest trading partner, the Australian dollar serves as an important indicator of RMB strength, making AUD/USD positions appealing. We could look at buying AUD/USD call options with expiration dates in the next month or two to take advantage of this regional sentiment. This outlook is further supported by strong iron ore prices, a major Australian export, which recently traded at an 18-month high of over $145 per tonne. Create your live VT Markets account and start trading now.

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