The USD/CNH currency pair is trading near its recent lows, affected by the broad softness of the US dollar and a notably low USD/CNY fix. The pair was last observed at 7.0427, with daily momentum showing mild bearish trends as the RSI approaches oversold levels. A break below the support level of 7.0380 could lead to further declines, while resistance is positioned at 7.08. The recent low fix was set at 7.0638, marking it as the lowest in 14 months.
The gradual appreciation of the RMB is being supported by these movements. Analysts have noted that the fixing pattern has consistently been on a downward path since April 2025, suggesting a strategic effort to maintain market order while steering the RMB’s appreciation. For the past two weeks, both the spot rate and Bloomberg consensus for the daily fix have been lower than the actual fix. This trend could either lead to continued downside pressure if policymakers maintain the current trajectory or temporary consolidation if the pace is moderated. Another lower fix or ongoing USD softness could drive further declines.
Us Dollar Weakness
The USD/CNH pair is being pushed down by general US dollar weakness and a deliberate policy to strengthen the yuan. We see the consistently low daily fix as a clear signal of an intended path toward gradual RMB appreciation. This managed descent has been orderly and consistent since the spring of 2025.
This broad dollar softness is not surprising, given the US Dollar Index (DXY) fell below 100 last week for the first time since early in the year. Markets are now pricing in a high probability that the Federal Reserve will hold rates steady in its upcoming January 2026 meeting, following a series of softer inflation prints. This contrasts with the situation in late 2024 when rate hike expectations were still prevalent.
On the other side of the pair, China’s Q3 2025 GDP came in at a better-than-expected 5.1%, boosting confidence in the domestic economy. November data from the State Administration of Foreign Exchange also showed a third straight month of net portfolio inflows, suggesting international capital is returning. A stronger yuan reinforces this narrative of stability and attracts further investment.
Implications For Traders
For derivative traders, this environment suggests positioning for more downside in USD/CNH. Buying put options with strike prices below the 7.0380 support level, perhaps targeting the psychological 7.00 mark, appears to be a viable strategy. The clear policy guidance provides a strong tailwind for this directional view into the new year.
However, we must be mindful that the RSI is approaching oversold territory, which could lead to a temporary pause or bounce. To manage this risk, using bear put spreads could be a prudent approach, as this would lower the upfront cost and define the risk if the pair consolidates around current levels. The key is to watch if policymakers moderate the pace of setting the fix lower in the coming weeks.
Looking back, this trend is a major reversal from the period of yuan weakness we saw through much of 2023 and 2024, when the pair consistently traded above 7.25. The current controlled strengthening is a significant policy shift. This makes the move below 7.08 feel more sustained than a temporary market fluctuation.
