On April 8, 2025, the USD/CNH exchange rate reached 7.4273, influenced by the ongoing trade war between the US and China. Even though both nations agreed to several trade truces that reduced tariffs, the exchange rate eventually stabilized between 7.10 and 7.20. Initially, US tariffs rose as high as 145%, while China’s tariffs peaked at 125%. This led to a 90-day truce, lowering tariffs to 50% for Chinese exports and 30% for US exports. The truce was extended for another 90 days after August 12. During this time, the yuan held its value despite the increased tariffs on Chinese goods.

Currency Exchange Dynamics

While the Bloomberg dollar spot index dropped nearly 8% this year, the USD/CNH rate only fell around 2.5%. This shows that the US dollar remains strong against the offshore yuan, even as it struggles against other major currencies. The situation highlights the complexities of currency exchange influenced by trade talks and economic policies. Currently, the USD/CNH trading stability around 7.15 may be misleading. Even though the yuan seems strong since the trade truce started, the US dollar has performed much better against the yuan compared to other currencies. This year, despite the broader Bloomberg dollar index’s nearly 8% decline, USD/CNH has only decreased by about 2.5% from its peak in April. We are nearing a crucial deadline in a few weeks—November 10—when the second 90-day trade truce is set to end. The market has settled into a calm state following the extended pause in conflicts, leading to low volatility. However, this quiet period may change as negotiators from both sides decide whether to extend the truce, raise tariffs, or pursue a new agreement. This year’s data shows surprising strength in China’s economy, despite the 50% tariffs. For instance, China’s Q3 GDP growth was reported at 4.9%, surpassing expectations, and September’s industrial production also showed a slight improvement. This resilience may empower Chinese negotiators to take a stronger stance in upcoming talks.

Market Strategies Amid Trade Negotiations

In the US, recent inflation figures are a concern. The September 2025 Consumer Price Index remains above the Federal Reserve’s target, limiting the central bank’s ability to relax monetary policy. This economic backdrop provides strong support for the dollar, giving US officials significant leverage as the truce deadline approaches. For derivative traders, this situation suggests preparing for potential spikes in volatility. Purchasing USD/CNH call options that expire after mid-November offers a low-risk opportunity to profit if talks break down. A return to the high tariff levels seen in April could push the exchange rate back toward 7.40. We think the current implied volatility in the options market is too low given the upcoming risk event. In past trade disputes in 2019, 1-month USD/CNH implied volatility rose above 8%; today, it stands at about 5%. This indicates that long volatility strategies, like straddles or strangles, could be attractively priced. On the other hand, a surprise long-term agreement could lead to a sharp strengthening of the yuan, pushing USD/CNH below the recent 7.10 level. Traders expecting a breakthrough might consider buying put options. This could serve as a primary bet on a peaceful resolution or act as a hedge against long USD positions in a portfolio. Create your live VT Markets account and start trading now.

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