BNY’s Head of Markets Macro Strategy Bob Savage reported a wide gap between CNY forwards and the spot rate, pointing to hedge unwinding alongside asset outflows. The yuan has outperformed peer currencies, but spot flow data show large outflows linked to expatriation. Flow data showed very large outflows over the past two days, described as likely tied to asset expatriation or direct currency transactions after recent developments. Over the past three sessions since the conflict began, CNY forward and swap activity produced the largest year-to-date flows, extending earlier strong moves.

Policy Commitment To Currency Stability

PBoC governor Pan Gongsheng said China does not need or plan to use currency depreciation to gain trade competitiveness. He reiterated that the renminbi will be kept broadly stable and not used as a tool in trade disputes. We are seeing a notable divergence between the Chinese yuan’s forward contracts and its spot price, which is being pushed lower by capital outflows. Recent data from February 2026 showed China’s Caixin Manufacturing PMI slipping to 49.5, fueling these concerns. This suggests a conflict between market flows and future expectations. The spot market weakness seems directly tied to asset expatriation, with some of the largest outflows this year occurring in the last week. The latest figures from China’s State Administration of Foreign Exchange (SAFE) support this view, showing net portfolio outflows picked up to over $32 billion in the fourth quarter of 2025. We question the currency’s ability to act as a safe haven when faced with such pressure. Despite this, forward and swap flows are pricing in a stronger yuan, possibly because traders believe authorities will intervene to ensure stability. The People’s Bank of China has been backing its verbal commitments with action, consistently setting the daily USD/CNY reference rate stronger than market expectations over the past month. This official stance is the main force preventing a sharper decline.

Trading Implications For Volatility Strategies

This situation is reminiscent of the playbook we observed through much of 2025, where authorities leaned against depreciation without halting it completely. Looking further back, the managed devaluations in 2015 and 2023 showed that while stability is the goal, a gradual slide is tolerated during periods of economic stress. The current outflows are testing this long-held policy. For derivative traders, this tension creates opportunities in volatility rather than direction. Buying options, such as USD/CNH call spreads, could be an effective way to position for a potential sharp move if the PBoC’s control slips. The cost of volatility remains relatively low, pricing in a stability that current capital flows are challenging. Selling USD/CNH forwards to collect the premium is tempting but carries what we see as asymmetric risk if spot weakness accelerates suddenly. A more prudent approach for the coming weeks would be to use option structures that define a clear risk range, such as collars. This allows traders to navigate the choppy environment where official policy is directly fighting against market flows. Create your live VT Markets account and start trading now.

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