Hedge funds are increasing wagers that the Chinese yuan will extend its rally against the dollar, with options market activity pointing to expectations of the offshore yuan (CNH) strengthening to 7 or firmer by year-end, according to a report by Bloomberg citing SGX Derivatives Exchange data.
Demand for USD/CNH put options – which gain when the yuan appreciates – has picked up as investors grow more confident in Beijing’s policy support and shift expectations toward further Federal Reserve rate cuts. On 28 August, the most traded December contract was a put with a 6.94 strike, compared with the yuan trading around 7.13.
The People’s Bank of China last week raised its daily fixing for the yuan by the most in nearly a year, reinforcing bullish sentiment. Meanwhile, improving investor appetite for Chinese assets—underpinned by fiscal stimulus and progress in US-China trade talks—is adding momentum.
Despite the yuan hitting a 10-month high last week, options skew still shows relatively cheap protection against further dollar weakness, suggesting scope for additional positioning. Onshore FX option volumes also hit a record $228bn in July, highlighting growing activity across both retail and institutional channels.
