The yuan is expected to move towards 6.80 against the US dollar for the first time in three years, while the People’s Bank of China slows the pace of gains through weaker daily fixings. The currency has been supported by first-quarter growth and exports, despite softer recent activity data and easing CPI inflation.
Chinese government bonds have been supported by a $51trn domestic savings pool and demand for local debt. The 10-year Chinese government bond yield has fallen below 1.79% (200dma), and a basket of CNY high-grade bonds leads the Bloomberg global fixed income aggregate year to date at about +1.1%.
China’s first-quarter growth rose to 5.0% year on year, up from 4.5% in the fourth quarter. First-quarter exports increased by 14.7%.
When we looked at the data in early 2025, the picture was one of robust strength, with strong Q1 growth and exports pointing toward continued Yuan appreciation. At the time, the path to 6.80 against the dollar seemed clear, supported by an outperforming bond market. The fundamental drivers supporting the Yuan have since shifted significantly.
The economic momentum we saw last year has faded considerably. China’s Q1 2026 GDP growth came in at 4.6%, missing forecasts and signaling a slowdown from the 5.2% full-year growth achieved in 2025. Furthermore, recent trade data for March 2026 showed a surprise 7.5% year-on-year fall in exports, a stark contrast to the double-digit growth seen in early 2025.
This weaker economic backdrop has reversed the Yuan’s trajectory, with the USD/CNY now trading around 7.24, far from the 6.80 level discussed last year. The People’s Bank of China has also shifted its stance, cutting its key one-year policy rate in February 2026 to support growth. The yield on 10-year government bonds has risen to 2.31%, reflecting changing rate expectations and a departure from the outperformance of last year.
For derivative traders, this environment suggests positioning for further measured Yuan weakness. Buying USD/CNY call options with strikes around 7.28 to 7.30 could provide upside exposure if the economic data continues to disappoint. This strategy allows traders to profit from a depreciating Yuan while capping downside risk to the premium paid.
We should also consider strategies that bet on lower volatility, as the PBoC is actively managing the currency’s decline to prevent sharp moves. Selling short-dated USD/CNY strangles could be effective if we expect the currency to trade within a stable range, albeit with a weakening bias. This approach benefits from time decay as long as the currency does not make a large, unexpected move in either direction.
