On Wednesday, the People’s Bank of China set the USD/CNY reference rate at 7.0471, down from 7.0523. This rate is also different from the Reuters estimate of 7.0240.
The People’s Bank of China’s main goals are to keep prices stable, boost economic growth, and implement financial reforms. As a state-owned entity, the bank is strongly influenced by the Chinese Communist Party.
China’s Monetary Tools
China’s central bank uses various monetary tools, including a seven-day Reverse Repo Rate and a Medium-term Lending Facility. The Loan Prime Rate affects loan and mortgage rates and also has an impact on the exchange rates of the Chinese Renminbi.
In China’s financial sector, there are 19 private banks, though it remains mainly state-controlled. Major digital lenders like WeBank and MYbank, backed by tech companies Tencent and Ant Group, have been part of this sector since 2014, when private lenders were allowed to operate.
The People’s Bank of China has recently guided the yuan to be stronger against the dollar through its reference rate. This suggests a desire for currency stability or even appreciation as the new year approaches. Policymakers are clearly signaling their preferences.
Recent economic data supports this move. For example, China’s industrial output for November 2025 increased by 4.8% compared to the previous year, which was better than expected. Additionally, the trade surplus rose to over $85 billion. These factors support a stronger currency.
Trading and Economic Strategies
We’ve seen similar strategies in the past, but the current situation is different from the yuan’s previous weakness in 2023 when the USD/CNY exceeded 7.30. Instead of a defensive approach, today’s stronger fix indicates a confident stance aimed at managing market sentiment, suggesting the central bank is not worried about export competitiveness right now.
For traders in derivatives, betting on a weaker yuan could be risky in the coming weeks. Considering the potential for further strength in the yuan, buying put options on USD/CNY with early 2026 expirations could be a smart move. This strategy lets you take on limited risk while benefiting from potential decreases in the currency pair.
The firm guidance from the central bank is likely to reduce market volatility, making it less likely for the USD/CNY to rise significantly. Thus, selling out-of-the-money call options on USD/CNY could be a smart way to earn premiums. This is also a good time for businesses to protect themselves against dollar-denominated liabilities for the first quarter.
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