USDCNY fixing rates continue to spike higher, which has triggered speculation that further CNY depreciation is looming on the horizon. While it seems that the Chinese central bank (PBoC) continues to weaken its currency via the fixing, the fixing rates are generally in line with what the fixing model suggests so far.
Indeed, China’s central bank has some discretion in managing the closing rates as the previous closing is an important factor for determining the next fixing rate. As the dollar index is range-trading, the weakening bias in CNY fixing rates in recent months is largely due to the weak closing rates, which in PBoC’s opinion points to elevated USD demand.
However, the recent data suggests that overall capital outflows are easing, somewhat inconsistent with the movement of USDCNY spot rates. In the meantime, the FX forward market remains quiet, also signalling that the market does not speculate on a large CNY depreciation.
My best guess is either China’s central bank weakens its currency deliberately, or it wants to release some pent-up pressure on CNY under a favourable market environment.
Well, we cannot afford to sit right back and keep on worrying about a non-existence of option market for Chinese onshore currency (CNY).
Alternatively, as the skewness in OTM strikes in a long run shows probable occurrence, we recommend hedging Chinese currency depreciation risks via bear put spreads of USDCNH using OTM short strikes and ITM long strikes even when IVs are very low around 4.8%.


Iran’s AI memes are reaching people who don’t follow the news – and winning the propaganda war
Nigeria’s new election law leaves gaps: 5 reforms for free, fair and credible polls
Uranium Bull Market Gains Momentum Amid Supply Deficits and Geopolitical Tensions
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty
Morgan Stanley Warns Against Overestimating EV Demand Boost from Rising Oil Prices
Federal Reserve Probes Big Banks Over Private Credit Exposure Amid Growing Systemic Risk Concerns
Bank of Japan Signals Potential Rate Hike as Inflation Risks Rise Amid Energy Shock
This fuel crisis could last for a while. It’s time for a new approach to fuel use - end it
Bank of Korea Nominee Shin Hyun-song Signals Possible Rate Hike Amid Middle East Inflation Fears
RBNZ Holds Rates at 2.25% as Middle East Conflict Fuels Inflation Concerns




