A report by TD Securities anticipates a stable approach to the Chinese Yuan (CNY) by 2026, despite its current undervaluation. It predicts a USDCNY target of 6.7 by the end of the year.
The People’s Bank of China is seen as maintaining stability, with no major revaluation expected. The report notes that recent US dollar sell-offs did not prompt a revaluation, supported by PBoC’s daily fixings.
Historical Perspective On CNY Gains
Historical analysis suggests that CNY gains have not surpassed broad USD drops since 2014. This suggests a more rational move towards a USDCNY rate of 6.7 aligns with President Xi’s goals for exchange rate stability.
Given the view that a large-scale Yuan revaluation is unlikely this year, we should be cautious about positioning for aggressive CNY strength. The People’s Bank of China has demonstrated a clear preference for stability, which caps the potential upside for the currency in the near term. This suggests that any appreciation towards the year-end target of 6.7 will be slow and tightly managed.
Recent data supports this cautious stance. China’s export growth for January 2026 came in at a modest 2.5% year-over-year, giving authorities little reason to endorse a stronger currency that could hinder trade competitiveness. Furthermore, the PBoC’s daily fixings for USDCNY over the past two weeks have consistently been set slightly stronger than market estimates, signaling a desire to guide, not unleash, the Yuan.
Opportunities For Derivative Traders
For derivative traders, this environment of managed appreciation and suppressed volatility makes selling options an attractive strategy. With one-month implied volatility on USDCNY having already dipped from around 5.2% to 4.7% since the start of the year, selling out-of-the-money puts on USDCNY (or calls on CNH) allows us to collect premium while betting that the currency will not strengthen past certain levels too quickly. This aligns with the expectation of a gradual grind lower in the dollar-yuan pair rather than a sharp drop.
Looking back at the broad US dollar sell-off in late 2025, we saw a prime opportunity for Beijing to allow a significant CNY rally, but it chose not to. This behavior is consistent with the pattern observed since 2015, where the Yuan’s gains have not dramatically outpaced declines in the broader dollar index. We should expect this policy of prioritizing stability to continue in the weeks ahead.
