The People’s Bank of China (PBOC) decides the daily midpoint for the yuan, also called the renminbi (RMB). This is done under a managed floating exchange rate system, allowing the yuan to change within a +/- 2% range around a set reference rate. Currently, the yuan is valued at 7.1029, its strongest since November 6, up from a previous close of 7.1324. The PBOC injected 191.5 billion yuan through 7-day reverse repos at a rate of 1.40%, resulting in a net drain of 8.8 billion yuan.

Enhancing Yuan’s Internationalisation

China is looking into an offshore RMB stablecoin to boost the yuan’s international use. Furthermore, China will reopen its bond market to Russian energy companies, showing stronger ties between the two nations. Important events are coming up, including the release of Chinese trade data on Monday, September 8, 2025, as part of the Asian economic calendar. The PBOC’s strong yuan fixing at 7.1029 indicates they don’t want further weakness and may guide the currency to strengthen. This is a significant move, especially as it’s the yuan’s strongest point since November 2024. Traders should see this as a potential shift from the defensive measures used in the first half of 2025. This newfound confidence likely comes from improving domestic data. The Caixin Manufacturing PMI for August 2025 exceeded expectations at 51.2, marking three months of growth. A stronger economy allows officials to let the currency rise without harming growth, especially since the US Federal Reserve has hinted at pausing its tightening measures. The slight liquidity drain from reverse repos suggests they are satisfied with current financial conditions and are focused on the exchange rate.

Investment Strategy and Market Implications

Given this clear signal, we suggest buying call options on the yuan or put options on the USD/CNH pair in the coming weeks. This strategy allows you to benefit from potential yuan appreciation while limiting risk. Historical volatility charts from late 2024 show that current implied volatility is relatively low, making option premiums more appealing. Today’s immediate test for this outlook comes with the release of China’s August trade data. If exports exceed the consensus forecast of 3.5% year-on-year growth, it would support the PBOC’s actions and possibly lead to further gains for the yuan. Conversely, a weak report could undermine this optimistic view and lead to a sharp reversal. Looking back, this decisive fixing contrasts sharply with the fight against depreciation seen throughout 2024, indicating a shift in policy. Long-term plans like an offshore RMB stablecoin and opening bond markets to Russian firms reflect a desire for a stronger, more globally recognized currency. These elements support maintaining a core bullish stance on the yuan through derivatives. Create your live VT Markets account and start trading now.

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