The People’s Bank of China (PBoC) wants the yuan to gradually increase in value to help it become more widely used internationally. At the same time, it aims to keep Chinese exports competitive. Since late August, the yuan has stabilized between 7.10 and 7.15 against the dollar. Earlier this year, the yuan strengthened from 7.35 in April due to several reasons, like a trade truce between the US and China and a stock market surge that drew in capital. The Shanghai-Shenzhen CSI300 Index has gone up by 30% since April. Additionally, China’s trade surplus for the first ten months of this year reached $965 billion, a 22% increase from last year.

Potential Challenges Still Exist

Even with support for the yuan, challenges are on the horizon. If China’s economic fundamentals weaken, capital inflows into its financial markets could decline. There’s also evidence that export growth is slowing down. In October, the Purchasing Managers’ Index (PMI) for new export orders fell, and growth in exports to markets outside the US also slowed. The FXStreet Insights Team offers this financial content based on expert analysis to help readers. However, it is not intended as investment advice. Any risks involved in open market transactions are the investor’s responsibility. We expect the Chinese yuan to gradually appreciate against the US dollar in the coming weeks. The People’s Bank of China seems to support a stronger yuan for international recognition while avoiding rapid increases to protect export competitiveness. This expectation is further supported by market anticipation that the US Federal Reserve might begin cutting interest rates in the first half of 2026, which could pressure the dollar. The yuan’s strength is backed by significant capital inflows into China’s stock market, which has shown a strong recovery since the lows related to tariffs in April 2025. Recent data indicates that net foreign investments in Chinese A-shares via the Stock Connect program reached a six-month high in October. The CSI300 Index is also holding steady above 4,200. Moreover, China’s trade surplus hit an impressive $965 billion in the first ten months of this year, already surpassing the total of $823 billion for all of 2023.

Strategies and Risks

In this context of controlled appreciation, traders should consider tactics that profit from a slow decline in the USD/CNY exchange rate. Selling out-of-the-money call options on USD/CNY can be a good strategy to earn premiums, as PBoC’s daily fixes below 7.10 indicate limited dollar strength. The managed currency suggests that realized volatility will likely stay low, making option-selling strategies more favorable than outright purchases. However, we need to be cautious about any headwinds that might change this trend. The most recent Caixin Manufacturing PMI for October fell to 49.8, with the new export orders sub-index dropping to 48.5, signaling a contraction in foreign demand. Any signs that capital inflows are reversing or that corporate profits are weakening could quickly hurt the yuan. Thus, while our main strategy focuses on the yuan becoming stronger, it’s wise to hedge against a potential reversal. Buying inexpensive, out-of-the-money USD/CNY call options could provide a safety net if slowing export growth or changes in investor sentiment lead to an unexpected spike in the currency pair. This is a low-cost way to manage the risk of sudden policy changes or negative economic data from China. Create your live VT Markets account and start trading now.

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