The USD/CNY exchange rate has been quite stable recently. Since the US-China trade agreement on June 11, the rate has fluctuated between 7.155 and 7.188, which is less than 0.5%. The CNY (Chinese Yuan) is not freely traded; it is controlled by the People’s Bank of China (PBoC), which sets a fixed USD/CNY rate each day. The rate can move within a 2% range above this fixed value, but lately, it often tests the upper limit.

PBoC Strategy And Currency Management

The PBoC appears to be keeping the CNY weaker, with daily settings indicating a desire to limit any potential appreciation. While foreign currency data suggest upward pressure, the CNY remains below its possible appreciation value. This information includes projections that involve risks and should not be seen as investment advice. It is essential to do thorough personal research before making investment choices, as there are high risks, including potential losses. The statements here do not represent official policies and are not influenced by any specific stocks or companies. We think the current stability in the exchange rate offers a chance for derivative traders. One-month implied volatility for the offshore yuan has recently been around 3.5%, which is significantly lower than its historical average. This situation is favorable for strategies that benefit from low volatility, like selling options with strike prices outside the recent tight range.

Impact Of Trade Surplus On Currency

However, the central bank is actively suppressing market forces. China’s trade surplus recently expanded to $82.62 billion in May 2024, which usually pressures the currency to appreciate. This indicates that the current calm may be artificially created and might not last if policies change. Traders should remember the unexpected devaluation in August 2015, which caused a sudden surge in volatility. That event highlights how stability driven by policy can vanish quickly. Therefore, any trades aimed at profiting from this calm should include protection against sudden policy shifts. Considering the underlying pressure for appreciation from foreign currency data, a long-term speculative position might also be worth exploring. We see potential value in buying long-dated, out-of-the-money put options on the USD/CNY pair. This strategy provides a low-cost way to potentially gain from a significant strengthening of the yuan in the future. Create your live VT Markets account and start trading now.

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