Bullish bets double, could rise another 5% within the year? The RMB is breaking out of its independent trend—what's next?

As bullish bets in the foreign exchange options market surge, the Chinese yuan (Renminbi) is showing a strong independent trend. Driven by the release of large-scale foreign exchange settlement demand and improving macroeconomic data, market expectations for further appreciation of the yuan this year have significantly increased. Options traders are aggressively building positions, with some funds locking in year-end target prices around a 5% appreciation.

According to data from the Depository Trust & Clearing Corporation (DTCC), on Thursday, trading volume for USD/CNY options soared, making it the second-largest options product globally. Notably, put options betting on yuan appreciation reached $100 million or more, twice the volume of call options betting on its decline. An external investment bank report indicates that clients are actively purchasing option structures to lock in current profits and maintain bullish exposure, targeting levels as low as 6.50 or even lower.

In the spot market, the yuan also demonstrated a notable independent trend. This week, the yuan hit its longest consecutive rally against the dollar since 2010. The offshore RMB exchange rate briefly broke below 6.83 in late February, reaching a new high since April 2023. Amid the recent overall rebound of the dollar, the yuan outperformed other major non-dollar currencies, showing a solid upward momentum.

This strong performance has directly reshaped the exchange rate expectations of multinational corporations and investors, prompting a reassessment of Chinese asset returns. Although most institutions expect the yuan to appreciate modestly within the year, the Chinese regulators have begun implementing countercyclical measures to prevent excessive exchange rate overshoot and maintain two-way volatility. The options market also shows that investors are hedging against potential short-term corrections.

Bullish bets in the options market surge, with targets around 6.50

According to Bloomberg, traders in the foreign exchange options market are heavily positioning for yuan appreciation, with most setting year-end targets near 6.50. Akshay Saxena, Head of FX Options Trading at Citi Asia, stated that recent bullish bets on the yuan have been supported by the downward trend in the midpoint rate, indicating that the central bank is moderately tolerant of a stronger yuan.

“We see strong demand for bearish spreads, digital puts, and other strategies betting on a decline of USD offshore RMB, which reflects a broad consensus that offshore RMB will continue to appreciate in the medium term, with a typical year-end target of 6.50,”

Saxena added that these low-cost options strategies can profit if USD/CNY declines.

Meanwhile, Standard Chartered Bank also reported increased demand for structured products benefiting from a stronger offshore yuan. Saurabh Tandon, Head of FX Options at Standard Chartered Bank Singapore, said:

“We are now seeing some accounts rolling forward structures to lock in initial profits.”

Additionally, recent yuan gains have further boosted bullish confidence. Bilal Hafeez, CEO of Macro Hive, is more optimistic, predicting the currency pair could fall to 6.40.

Release of settlement demand and macro fundamentals reinforce the trend

The current independent trend of the yuan is supported by solid macroeconomic data and corporate settlement behaviors. In a research report, Shen Zheng Strategy pointed out that the yuan is actively appreciating, explicitly stating:

“The accelerated release of settlement demand has become an important support for the recent strengthening of the yuan exchange rate.”

Data shows that in December last year, banks’ net settlement of foreign exchange reached $99.9 billion, and in January this year, $88.8 billion, both at high levels historically.

The large accumulated foreign exchange surplus is transforming into substantial real buy orders in the spot market. GF Macro noted in a report:

“We estimate, using two simple methods, that the remaining unsettled foreign exchange volume from 2022 to 2026 is approximately in the range of $0.7251.14 trillion, averaging around $932.2 billion. The cost of holding these foreign exchange positions is mostly in the 7.0–7.2 range, with about 79.8% of holdings currently at a ‘floating loss.’ Thus, this round of settlement is likely not just a short-term action.”

GF Macro’s data also shows that the trade surplus for goods in 2025 will reach $1.189 trillion, with the ratio of surplus turning into net inflow rising to nearly 77.6%, the highest in nearly a decade.

Besides the strong international balance of payments, domestic inflation stabilization and improved capital market returns are key drivers. In January, China’s CPI rose 0.2% month-on-month, PPI increased 0.4%, indicating a clear price recovery trend. Chinese equities, represented by the Wind All A Index, posted significant positive returns at the start of the year, outperforming the three major US stock indices, further attracting global capital.

Moderate policy regulation may lead to future two-way fluctuations

In response to the rapid unilateral appreciation of the yuan, Chinese regulators have begun signaling measures to prevent excessive exchange rate overshoot. On February 27, the People’s Bank of China announced that from March 2, it would remove additional charges on short positions in the foreign exchange derivatives market, easing the pace of yuan appreciation. Recently, the central parity rate has also shown signs of slight weakening, maintaining the exchange rate within a reasonable and balanced range.

The pricing structure of the options market also reveals cautious sentiment behind the unilateral expectations. Despite large volumes of put options, the market still prices in a premium for call options on the dollar. Ivan Stamenovic, Head of G-10 FX Trading at Bank of America Asia Pacific, commented:

“This is more about the market protecting short spot positions rather than anyone seeking a sharp reversal in spot.”

Looking ahead, most market participants believe that after the rapid rise, the yuan’s volatility will revert to the mean. GF Macro concluded in its report:

“Considering these two factors, our view on the yuan exchange rate is that the unilateral trend will be somewhat less pronounced than in the past two quarters, with increased bilateral characteristics, but still maintaining a slight appreciation trend over the year.”

Based on macro quantitative models, the institution expects the yuan to continue appreciating after bilateral fluctuations, stabilizing around 6.85 to 6.87 by year-end.

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