RMB: A good start after the holiday
Morning FX
On the first working day of the Year of the Horse, the RMB demonstrated strong performance. In the afternoon, it broke through the key levels of 6.89 and 6.88, appreciating by 200 pips intraday,with the closing price reaching a new high since April 2023.
I. Customer Settlement Remains the Main Driver
The latest published settlement and sales data for January 2026 continues to be impressive. In January, the bank's foreign exchange settlement surplus for clients reached $88.8 billion. Although this is a slight decrease from December 2025's $99.9 billion, it is still the second highest level since January 2013.
It is worth noting thattwo key data points have reached record highs since statistics began in 2010:
1. Net settlement under securities investment reached $25.9 billion.This reflectsrestored confidence of foreign capital in Chinese assets, with an accelerated allocation of RMB assets underway.
2. Forward net settlement reached $39.3 billion.With expectations of a Fed rate cut, USDCNY swap points have risen significantly compared to the past two years, reducing the cost of forward settlement. Coupled with the market's consensus expectation of RMB appreciation, exporters are no longer holding on to their currencies, choosing instead to lock in future exchange rates in advance. This also explains why USDCNY swap points have been under pressure since January.
II. Marginal Improvement in the External Trade Environment
After the US Supreme Court ruled that IEEPA tariffs were illegal, tariffs on China and some EM countries have been reduced. Although Trump immediately announced a new 15% global tariff, this is still lower than the previous 20% tariff imposed on China (10% reciprocal tariff + 10% fentanyl tax), representing a 5% decrease. Considering Trump's planned visit to China at the end of March, the likelihood of further additional tariffs on China in the near future is relatively low, boosting market confidence.
III. What Does the Options Market Reflect?
However, the options market is sending a seemingly contradictory signal. Despite the continued appreciation of the RMB, USDCNH RR(Risk reversal)has been rising (USD Calls are more expensive than Puts),with a divergence between SPOT and RR trends.
In the author's view, the rise in RRshould not be simply interpreted as the market expecting future RMB depreciation, but rather as a result of foreign capital’s demand for FX hedging when buying Chinese assets.
As mentioned above, net settlement under securities investment has reached a historical high, with large overseas funds allocating Chinese assets on a massive scale. For foreign investors holding RMB assets, their main risk is the potential depreciation of the RMB leading to asset devaluation. To hedge this risk, these investors need to buy USD Calls in the options market. This rigid hedging demand on a large scale pushes up Call prices, resulting in the rise of RR.
The rise in RR is a good hedging opportunity for settlement clients. They can use a risk reversal settlement combination (sell call + buy put) to lock in part of the exchange rate risk.
IV. Conclusion
The reasons for RMB appreciation are, on one hand, the driving force of settlement flows from a supply and demand perspective, and on the other, the marginal improvement in the external trade environment. The rise of USDCNH RR in the options marketalso indirectly confirms the hedging demand of foreign capital inflows into China. For settlement clients, they can seize the opportunity of rising RR to lock in part of their forward settlement exposure throughrisk reversal settlement combinations.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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