The USD/CNY fix was set at 7.0949, marking the third consecutive session below 7.10. Despite this lower fix, the USD/CNH last traded at 7.1280, remaining stable with previous levels, as noted by OCBC’s FX analysts.

Policymakers appear to be guiding the renminbi towards appreciation, albeit gradually. Market discussions indicate potential explicit strengthening of the renminbi ahead of the Chinese Communist Party’s 4th plenum in Beijing from 20th to 23rd October. The Central Committee will outline the next 5-year plan from 2026-2030, focusing on economic development, security, innovation, and livelihood improvement.

Communique And Market Reactions

A communiqué from the meeting is expected on 23rd October, with the 5-year plan proposal following a week later. The Central Economic Work Conference will finalise key policies in December ahead of the National People’s Congress meeting in March 2026. US-China tensions persist over rare earth export controls and tariff threats, tempering the renminbi’s potential weakening.

For the market, a sentiment boost is needed to align spot rates with fixings. Bullish momentum is waning, and the RSI is decreasing, with risks skewed to the downside. Support is at 7.1150 and 7.08, while resistance lies at 7.1330, 7.1420, and 7.1460 levels.

The People’s Bank of China continues to signal its desire for a stronger Yuan, setting the daily fix below 7.10 for the third day in a row. This policy guidance is likely a move to project stability ahead of the 4th Plenum meeting next week, from October 20th to 23rd. However, the spot market is showing some hesitation, with USD/CNH trading higher than the fix, indicating underlying market caution.

Recent economic data gives some credibility to this stronger Yuan policy, as we saw China’s Q3 GDP figures last week come in at 4.9%, just beating consensus forecasts. This solidifies the view that authorities have a stable economic footing from which to guide the currency. This contrasts with the situation in the United States, where the latest September CPI data showed inflation remaining sticky at 3.5%, keeping the Federal Reserve on a hawkish footing.

Trading Strategies And Considerations

For traders, this creates a clear tension between Chinese policy and US fundamentals, with risks for USD/CNH skewed to the downside in the near term. We should consider positioning for potential Yuan strength, especially around the Plenum dates. Buying USD/CNH puts with strike prices targeting the 7.1150 or 7.08 support levels could be a viable strategy to capture a drop.

The uncertainty surrounding the Plenum’s communiqué, expected on October 23rd, has pushed up short-term implied volatility in the options market. This makes buying options more expensive but also underscores the potential for a sharp move. For those with existing long USD/CNH exposure, this is a clear signal to consider hedging that risk.

We must remember that geopolitical tensions can quickly override this policy direction, as seen during the trade disputes of 2018 and 2019 which caused significant Yuan depreciation. The ongoing friction over rare earth exports and tariff threats means that while the path of least resistance appears to be a stronger Yuan for now, this could reverse sharply. Therefore, structuring trades with defined risk, such as put spreads, may be more prudent than holding outright short positions.

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