The People’s Bank of China (PBOC) set the daily midpoint for the yuan at 7.1030 per US dollar. This is the strongest level for the onshore yuan since November 6, 2024. This reference rate is part of a managed floating exchange rate system, allowing the yuan to move up or down by 2% from this midpoint. The previous day’s closing rate was 7.1306. This month, the PBOC raised the CNY mid-rate by 0.65%, which is the largest increase since September 2024. The PBOC also injected 782.9 billion yuan through 7-day reverse repos at an interest rate of 1.40%. With 361.2 billion yuan maturing today, the net injection is 421.7 billion yuan.

Support for the Yuan

Today’s central bank setting sends a strong message to support the yuan. The rate of 7.1030 is much stronger than expected, showing a clear intention to guide the currency higher. This suggests that anyone betting against the yuan is facing a strong policy direction. This major strengthening, the biggest monthly change since September 2024, aims to address recent economic challenges. Capital outflows increased during the summer of 2025, and this policy is designed to reverse that trend. By boosting the yuan, authorities hope to slow down these outflows and show stability. At the same time, the large cash injection aims to bolster the domestic economy, which showed weaker GDP growth in Q2 2025. This strategy of a strong yuan combined with loose domestic credit is a careful balancing act, as it seeks to attract foreign investment without making it tougher for local businesses.

Investment Strategies

In the next few weeks, consider buying call options on the CNH to take advantage of potential further gains, as this policy seems solid. The implied volatility for one-month USD/CNH options has likely risen due to this announcement, reflecting market uncertainty. Selling yuan puts is riskier but could be rewarding if this new rate stays stable. The extra liquidity also boosts Chinese stocks, making call options on stock indices like the CSI 300 an appealing choice. We saw a similar strategy used in late 2022, which led to a period of managed currency strength and higher asset prices. Given current policy uncertainty, buying volatility through a straddle on the USD/CNH might be a smart way to guard against sudden shifts. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now