China has continued to steer the CNY stronger after the first US\u2011China tariff truce in April 2025. USD\/CNY broke below 7.00 in January, after falling below its daily fixing in December 2025.<\/p>\n
The tariff truce has been extended to November 2026. Presidents Trump and Xi are set to meet four times this year as the two sides manage their rivalry.<\/p>\n
Policy direction is focusing more on the CNY\u2019s credibility and wider use outside China. This includes systems such as Digital CNY and CIPS.<\/p>\n
The emphasis is shifting away from export competitiveness. The stated aim is to support further opening and deepening of China\u2019s capital markets, and broader use of the CNY in global reserves, trade, investment, and foreign exchange markets.<\/p>\n
Given China’s clear policy of guiding the Yuan stronger, we see the path of least resistance for USD\/CNY as remaining downwards. The pair has already tested the 6.85 level several times this month, reinforcing the trend we observed when it broke the key 7.00 mark back in late 2025. Traders should consider positions that benefit from further Yuan appreciation, such as long CNH futures or buying put options on the USD\/CNY pair.<\/p>\n
The government’s steady hand suggests that unexpected, sharp movements are unlikely, which is suppressing currency volatility. In fact, implied volatility on one-month USD\/CNY options has compressed to multi-year lows, recently touching 3.5%, down from over 5% in late 2025. This environment is favorable for strategies that involve selling volatility, like short straddles, assuming Beijing continues to engineer a slow and steady grind stronger for its currency.<\/p>\n
This policy is also designed to attract foreign capital, a key part of the internationalization goal. With China’s 10-year government bond yield holding steady around 2.8% while the US 10-year is closer to 2.2%, a stable and strengthening Yuan makes the carry trade more appealing. This positive yield differential provides a cushion and an incentive for funds to flow into Chinese assets.<\/p>\n
Looking back, we see this is a major shift from the export-focused policies that led to the sudden devaluation in 2015. The new priority is credibility, evidenced by the fact that transaction volumes through the CIPS payment system grew by over 25% in 2025 alone. This managed strength in the Yuan is also likely to provide an anchor for other Asian currencies, potentially benefiting long positions in the Singapore Dollar or Korean Won as well.<\/p>\n
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