The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB), under a managed floating exchange rate system. This system allows the yuan to fluctuate within a +/- 2% range around a central reference rate, or “midpoint.”
At 7.1029, the yuan reached its strongest value since November 6, with a previous close of 7.1324. The PBOC injected 191.5 billion yuan through 7-day reverse repos at 1.40%, leading to a net drain of 8.8 billion yuan.
Enhancing Yuan’s Internationalisation
China is considering an offshore RMB stablecoin to enhance the yuan’s internationalisation. Additionally, China plans to reopen its bond market to Russian energy firms, indicating stronger bilateral ties.
Upcoming events include the release of Chinese trade data on Monday, September 8, 2025, as part of the Asian economic calendar.
The central bank’s strong yuan fixing at 7.1029 is a clear signal they will not tolerate further weakness and may be guiding the currency higher. We see this as a decisive move, especially as it’s the strongest level since November of last year, 2024. Traders should view this as a potential shift away from the defensive stance we saw through much of the first half of 2025.
This confidence likely stems from improving domestic data, with the Caixin Manufacturing PMI for August 2025 recently beating expectations at 51.2, marking a third month of expansion. A stronger economy gives officials more room to let the currency appreciate without hurting growth, especially as the US Federal Reserve has been signaling a pause in its own tightening cycle. The subtle liquidity drain via reverse repos suggests they are comfortable with current financial conditions and are focused on the exchange rate.
Investment Strategy and Market Implications
Given this clear signal, we believe buying call options on the yuan, or put options on the USD/CNH pair, is a prudent strategy for the coming weeks. This approach allows for participation in potential yuan appreciation while defining the maximum risk on the position. Looking at historical volatility charts from late 2024, current implied volatility is relatively low, making option premiums more attractive.
The immediate test for this view comes today with the release of China’s August trade data. A strong export number, beating the consensus forecast of 3.5% year-on-year growth, would validate the PBOC’s move and could trigger the next leg up for the yuan. A weak report, however, would challenge this bullish narrative and could cause a sharp reversal.
Looking back, this aggressive fixing contrasts sharply with the battle against depreciation we saw throughout 2024, suggesting a new policy phase. Longer-term initiatives like an offshore RMB stablecoin and opening bond markets to Russian firms underpin a structural desire for a stronger, more international currency. These factors support holding a core bullish yuan position through derivatives.
