The USD/CNH is currently below 7.0000 after China’s inflation data for December. The Consumer Price Index (CPI) increased by 0.8% year-on-year, marking its highest level since February 2023 due to rising food prices. Meanwhile, the core CPI held steady at 1.2% for the third month in a row. The Producer Price Index (PPI) saw a decrease of -1.9% year-on-year, indicating ongoing deflationary pressures.

Possible Boost to Consumer Spending

The stable USD/CNH could lead to increased consumer spending in China due to currency appreciation. A stronger yuan could give consumers more disposable income by making imports cheaper. However, deflation indicates that consumption is still weak in China. A continued decline in USD/CNH could help shift China’s economic focus towards consumer-driven growth. In summary, China’s inflation data presents mixed economic signals. While headline inflation has risen, the core inflation rate remains unchanged, and deflationary forces continue. Insights from the FXStreet Team suggest that these economic indicators may affect future currency trends and economic policies in China. With the USD/CNH staying below 7.0000, December 2025’s data is noteworthy. The headline inflation increase to 0.8% year-over-year, the highest since February 2024, is overshadowed by ongoing deflation in the producer price index, indicating weak domestic demand. This perspective is supported by the latest Caixin Manufacturing PMI for December 2025, which is at 49.8, indicating a return to contraction. This shows the factory sector is struggling, highlighting the issues with internal consumption. The mix of weak factory output and negative producer prices confirms a softer economic outlook.

Trading Strategies and Market Outlook

For traders, this strengthens the case for a continued decline in USD/CNH. Strategies that benefit from this downtrend may be favorable in the upcoming weeks. Buying put options on USD/CNH could provide exposure to potential declines while limiting risk. Expectations for U.S. monetary policy also shape this outlook. Markets now anticipate at least two interest rate cuts by the Federal Reserve by the end of 2026. This divergence, with the Fed likely easing while China remains steady, is expected to pressure the U.S. dollar. A weaker dollar supports the outlook for a stronger yuan. Comparing to much of 2024, when the USD/CNH was often above 7.20, the drop below the 7.0000 level is significant. The next major support level appears to be around 6.9000, which traders should monitor as a near-term target. It seems Chinese authorities are okay with gradual currency appreciation, aligning with their strategic goals. A stronger yuan can enhance the purchasing power for Chinese households by making imports cheaper, aiding the transition from an investment-led growth model to one focused on domestic consumption. Create your live VT Markets account and start trading now.

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