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USD/CNH (USD/CNY): An Overview

Fusion Markets

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The foreign exchange pair USD/CNH (or otherwise known as USD/CNY) is the trading ticker symbol for the powerful but volatile pair of the United States dollar and Chinese Renminbi. Chinese Renminbi is the official currency of the People’s Republic of China, but each individual unit of currency is called Yuan. These two are considered as “exotic” or volatile pairs, mainly because a major currency, USD, is paired with that of an emerging nation, CNH.

 

While considered volatile and generally treated with higher liquidity, the USD/CNH pair is the combination of the world’s two largest economies. The unique relationship between the two countries of the two currencies makes the combination both potent and fascinating.


CURRENCY BACKGROUND


United States Dollar


The United States Dollar is the official currency of the United States of America and several other countries. It is popularly known as the “greenback” due to the bills’ predominantly green color.

 

The Coinage Act of 1972 paved the way for the introduction of the US dollar. The fiscal policy of the United States is under the control and supervision of the Federal Reserve System, which serves as the nation’s central bank as well.


Chinese Yuan


The Renminbi is the official currency of the People’s Republic of China. The Yuan is the basic unit of the Renminbi, but it is also used to refer to the currency in general, especially in an international context.

 

In 1948, or one year before the establishment of the People’s Republic of China, the People’s Bank of China (PBOC) introduced the Renminbi. As the new government of China expanded its hold on its territories, it began to steadily issue the Renminbi so as to have a unified currency in the land. Since then, the Renminbi, or Yuan, has been in circulation and has been the official currency of China.


IMPLICATIONS OF USD/CNH CURRENCY PEGGING


The US and China have always had a love-hate relationship that greatly affects not only their trade relations but that of the world as well. The past decades saw a series of pegging and de-pegging between the two currencies. Here are a few key periods that saw the biggest impact and highlighted the importance of currency pegging.


1995-2005


The US Dollar is freely convertible into all currencies of developed economies. On the other hand, the Chinese government is managing the Chinese Yuan’s value. From 1995, Chinese Yuan was at a “hard currency peg” at 8.38 against the US Dollar. For a decade this seems to be the case, and for this reason, it received wide criticism, mainly from the US government. The expectation that there should be a movement in the currency exchange of Yuan (given that China’s economy saw big growth) was not seen. This move by China is seen to protect its interest as, by artificially keeping the value of the Yuan down, Chinese importers were given a competitive advantage: a lower Yuan exchange rate reflects a stronger Chinese currency because you would need fewer Yuan to purchase one US Dollar.


2005


July of 2005 saw a revaluation of the Yuan by the People’s Bank of China by 2.1 percent. PBOC likewise announced a shift to a “soft peg,” which will allow the Yuan to trade more freely within a certain managed exchange rate range. While some criticized the change for being too “insignificant,” many economists praised the move and saw it as the first step towards a more flexible currency exchange system.


2010 - present


Since 2010, China continued its efforts of reforming its exchange rate system by giving the buying and selling forces in the market a freer reign in determining the exchange rate.


IMPORTANT THINGS TO CONSIDER WHEN TRADING USD/CNH IN FOREX


Federal Reserve and People’s Bank of China


Federal Reserve


The Federal Reserve, or most commonly known as The Fed, is the United States’ central bank. It is responsible for the monetary policies of the nation and sets the interest rates of the dollar investments eight (8) times in any given year. The Fed provides direction to strengthen the US Dollar and in maintaining its fluidity and stability.


People’s Bank of China (PBOC)


PBOC is China’s central bank. It has the duty of implementing monetary policies – even unconventional ones – to ensure that CNY remains competitive and afloat. PBOC likewise sets a daily midpoint rate, which serves as a basis in trading Renminbi or Yuan within 2% in either direction.


Trade Wars


Being major players in the international trading arena, trade wars in the form of imposition of additional tariffs and sanctions greatly affects the values of the currencies. In the 2018-2019 US-China Trade standoff, when Trump imposed a series of sanctions against China’s products and exports, China retaliated by lowering the exchange rate value of CNY below its USD peg.


CNY Depegging and artificial manipulation

USD/CNH Weekly - Nov 2017-2018



CONCLUSION


Is the USD/CNH worth the risk for your investment?

 

As a volatile combination, is it worth the risk to invest in USD/CNH?

 

While it seems counterintuitive, the pair remains to be one of the most popular, given that the combination represents two of the most powerful economies in the world.

 

The US Dollar is the world’s primary reserve currency, and remains to be the most widely used currency when it comes to international transactions. The Chinese Yuan represents the continuous and rapidly rising economy of China, the world’s largest exporter. Their advantages when taken individually could be the pair’s strength when taken cumulatively.

 


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Relevant articles

Market Analysis
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How Global Interest Rate Divergence Is Shaping Forex Opportunities in 2025

Read Time: 12 minutes


Central banks around the world are no longer moving in tandem. In 2025 we see a clear interest rate divergence: some economies are cutting interest rates to support growth while others keep rates high or even hike them.


For forex traders, these policy differences are a big deal. They create shifts in currency values and fresh trading opportunities.


This article breaks down what interest rate divergence means, why it matters for FX, how major central banks like the Fed, ECB, RBA, and RBNZ are charting different paths this year, and what it all means for currency pairs like NZD/USD, AUD/USD, AUD/NZD, and EUR/USD.



Table of Contents



What Is Interest Rate Divergence (and Why Traders Care)


"Interest rate divergence" simply means central banks are going in different directions with their monetary policy. One bank might be raising or holding rates, while another is cutting rates.


These differences matter because interest rates heavily influence currency demand. In general, higher interest rates tend to attract foreign capital seeking better returns, boosting demand for that currency and causing it to appreciate, while lower rates can have the opposite effect.


For example, if New Zealand's interest rates fall well below U.S. rates, holding money in NZ dollars becomes less attractive relative to U.S. dollars. Traders respond by moving capital accordingly – a dynamic that shifts exchange rates.


Diverging interest rates can also spur carry trades (borrowing in a low-rate currency to invest in a high-rate one), further strengthening high-yield currencies.


Diverging Central Bank Paths in 2025


The start of 2025 has made one thing clear: the world's major central banks are not on the same page. Economic conditions vary across regions, so policymakers have taken different monetary paths – from aggressive easing to cautious pauses and even tightening.


According to Reuters, early 2025 saw the United States holding rates steady, the euro zone cutting rates, and outlier Japan hiking – a sharp change from 2024 when most banks were easing in unison.


Let's look at the distinct approaches of four key central banks and the reasons behind them:



Federal Reserve (USA) – Cautious Hold at High Rates


The U.S. Federal Reserve (Fed) entered 2025 with interest rates at multi-year highs and has opted to hold them steady for now.


After a series of rate hikes in 2022–2023 to fight inflation (and a few modest cuts in late 2024), the Fed's benchmark rate is sitting around 4.25%-4.50%.


Fed Chair Jerome Powell has signalled no rush to cut rates again until inflation is convincingly back to target and the labour market cools.


The U.S. economy has remained surprisingly strong, with solid growth and only "somewhat elevated" inflation, so the Fed is being very cautious about easing policy too quickly.


In December, Fed officials even revised their forecasts, indicating they expect only two small rate cuts in 2025 (down from four expected earlier).


By keeping U.S. rates high relative to others, the Fed is supporting the dollar's value – a point we'll see reflected in currency moves like EUR/USD.




European Central Bank (Eurozone) – Pivoting to Rate Cuts


Across the Atlantic, the European Central Bank (ECB) is taking the opposite route.


With eurozone inflation finally coming under control (somewhat) and growth fading, the ECB has pivoted to cutting rates in order to strengthen the economy.


They cut in late January, by 25 basis points – its fifth consecutive cut since mid-2024. This, in turn, brought the deposit rate down to about 2.75%.


Notably though, ECB policymakers have kept more easing on the table, reflecting confidence that euro-area inflation is headed firmly toward the 2% target.


In fact, markets have been pricing in multiple further ECB cuts in 2025 (around three more 0.25% reductions) as the eurozone economy struggles to gain some momentum.



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Figure: Change in policy rates by major central banks (Mar 2024 vs Feb 2025). Orange dots indicate central banks (like New Zealand, Canada, Eurozone, etc.) that have cut rates; yellow shows those that held steady (e.g. the U.S. Fed), and purple indicates rate hikes (e.g. Japan). Diverging policies are evident, with the RBNZ and ECB easing while the Fed stands pat and the Bank of Japan tightens.



Actionable Ideas for 2025


Global interest rate divergence has become a defining theme for forex in 2025. The Fed and RBA are cautiously standing pat or easing only slightly, whilst the ECB and RBNZ are more aggressively cutting rates to combat economic weakness.


These divergent paths have shifted interest rate differentials, in turn driving notable moves in FX markets – a stronger U.S. dollar relative to the euro, Aussie, and Kiwi; a surging AUD against a soft NZD; and other carry trade dynamics playing out.


Follow Central Bank Signals:

Keep a close eye on central bank meetings, statements, and economic data. A hawkish comment from the Fed or a dovish surprise from the RBA/ECB can quickly alter currency movements.


Trade the Differentials (Carry Trades with Caution):

Divergent rate policies mean some currencies offer higher yields than others. Traders can seek opportunities by going long currencies with higher or rising rates and shorting those with falling rates, effectively capturing the interest differential.



Conclusion


Global interest rate divergence is reshaping forex markets in 2025, creating clear winners and losers among currencies.


By understanding each central bank's policy trajectory and its impact on currency pair interest differentials, even beginner and intermediate traders can better navigate the trends.


Keep an eye on the data and use this knowledge to make informed trading decisions.


Whether you're capitalising on USD strength, taking a carry trade, or managing risk on a volatile EUR/USD, the key is to align your strategies with the underlying interest rate story.


As always, combine fundamental insights with sound risk management. Interest rate divergence is offering opportunities – and with the right approach, forex traders in 2025 can position themselves to take advantage of these global shifts in monetary policy.

02/04/2025
Market Analysis
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Strategic View: Planning For 2025

Read Time: 7 - 9 Minutes.


There’s already been some fantastic volatility in the forex market this year – mainly attributed to Trump, but also ongoing discussions around monetary policy in key economies. 


Even if you’re a short-term trader, it’s important to look ahead and form a strategy for the year. There’s currently a convergence of high U.S. real yields, central bank policies, and geopolitical risks that all traders need to keep on their radar. 


In this post, we will discuss the current themes for 2025, as well as identify ways in which we could capitalise on them. 


 

  1. The U.S. Dollar’s Strength and Global FX Implications 

The dominant theme in the FX market this year is the continued strength of the U.S. dollar (USD), fuelled by not only by Trump, but also high real interest rates and economic divergences.


Following what’s called the "red sweep" in the 2024 U.S. elections, markets have shifted expectations towards persistent USD strength in the first half of the year. 


There’s several factors contributing to this trend: 


  • High U.S. Real Yields: Elevated interest rates in the U.S. continue to attract capital inflows, ultimately reinforcing the greenback’s strength. 

  • Diverging Monetary Policies: Whilst the Federal Reserve remains cautious about rate cuts, the European Central Bank (ECB) and Bank of Japan (BOJ) are expected to ease policy further. 

  • Tariff Risks and Trade Policies: Anyone watching the headlines would be aware of Trump’s recent rampage on tariffs – these new tariffs could further support the USD by dampening foreign currency demand. 

Volatility Strategies will be the play here, with policy uncertainty and trade negotiations in the air, options-based strategies such as straddles or volatility swaps on USD pairs could become very attractive. 

 

2. Carry Trade Opportunities in High-Yielding Currencies 


With real interest rate differentials widening, carry trades remain a key theme in 2025. The market is favouring currencies with strong yield advantages, such as the U.S. dollar and select emerging market (EM) currencies. 


Key High-Yield Currencies: 

  • USD: The dollar’s rate advantage makes it a prime funding currency. 

  • CAD: Despite trade risks, Canada’s interest rate environment remains somewhat supportive. 

  • NOK: The Norwegian Krone has shown improved carry appeal, as a result of Norges Bank resisting an aggressive approach to rate cuts. 



Trading Strategies: 

  • Long USD/MXN or USD/ZAR: With emerging market currencies under pressure due to trade risks and high U.S. rates, going long USD against the Mexican Peso (MXN) and South African Rand (ZAR) could prove to be profitable. 

  • Short CHF or JPY in Carry Trades: Both the Swiss Franc and Japanese Yen are likely to underperform against high-yielding currencies due to negative real rates. This could provide some attractive carry trade opportunities. 

  • NOK/SEK Call Spread: As Norway’s interest rate stance is firmer than Sweden’s, NOK/SEK longs could offer potential upside. 

 


3. The Euro’s Structural Weakness and Political Uncertainty 


The euro (EUR) remains vulnerable this year due to a combination of economic underperformance and political instability. 


Key Risks for the EUR: 

  • Interest Rate Divergence: The ECB is expected to continue cutting rates, whereas the Fed remains on hold, for now. 

  • Trade War Exposure: Europe is a primary target for new U.S. tariffs, which could add to the weakening of the Euro. 

  • German and French Political Uncertainty: Domestic political risks, including German elections and policy uncertainty in France, add further downside pressure to the euro. 



Trade Idea: 


Short EUR/JPY 


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Figure 1 – EURJPY Weekly Chart 


Given Japan’s relatively stable policy outlook and Europe’s tariff risk, going short EUR/JPY remains a key trade. 



Long EUR Volatility 


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Figure 2 – Euro Volatility Index, daily chart 


For options traders, the euro’s downside risks make long volatility positions an attractive hedge against geopolitical shocks. 

 


4. Commodity Currencies 


Commodity-linked currencies such as the Australian Dollar, Canadian Dollar, and Norwegian Krone face some unique opportunities in 2025. 



The Oil Market’s Influence on FX 


Analysts are expecting crude oil markets to remain tight, with OPEC aiming to balance the supply and demand. In doing so, this could lend support to oil-linked currencies such as CAD and NOK, provided that global demand remains resilient. 

Gold and Safe-Haven Flows 




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Figure 3 – XAUUSD (gold), daily chart 




Gold prices have surged in early 2025driven by fears of tariffs, geopolitical tensions, and central bank buying. Whilst this supports the Australian Dollar to some extent, rising U.S. yields could ultimately cap AUD/USD upside. 



Trade Ideas: 

  • Long USD/CAD on Tariff Risks: The potential for broad U.S. tariffs on Canada could weaken the CAD, making long USD/CAD a defensive play over the long-term, especially given the bullish strength of the USD. 

  • Long Gold as a Hedge: With tariff risks escalating, gold remains a strong hedge opportunity against geopolitical uncertainty. 

 



5. Geopolitical Crossroads and FX Volatility 


Beyond macroeconomic fundamentals, geopolitical risks continue to hold the FX market at ransom in 2025. There’s potential for volatility to stem from: 


  • U.S.-China Trade Tensions: Renewed tensions from Trump could weigh on the Chinese Yuan (CNY) and ultimately spill over to other Asian FX markets, such as the AUD and NZD. 

  • European Political Shocks: Elections in Germany and France could provide sharp moves in the EUR. 

  • Middle East and Energy Market Risks: Any disruptions to oil supply chains would adversely affect energy-linked currencies, such as the CAD. 

Trade Idea: 


Long USD/CNH 


A line graph with black and purple lines

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Figure 4 – USDCNH, weekly chart 



Continued pressure on the Chinese economy and potential U.S. tariffs could push USD/CNH higher. It would be wise to look for long opportunities above 7.375. 

 



Final Thoughts 


As we take on 2025, having an understanding of the key macroeconomic drivers, central bank policies, and geopolitical risks is no longer ideal, but necessary. 


  • USD strength remains a dominant theme, with potential for reversals in Q3 & Q4 this year.. providing that the Fed pivots. 

  • Carry trade opportunities favour high-yielding currencies, whilst funding currencies like JPY and CHF face ongoing pressure. 

  • The euro still remains vulnerable as a result of policy divergences and political uncertainty. 

  • Commodity currencies require a more careful approach – with CAD and NOK benefiting from oil strength, whilst AUD could be exposed to further downside risks. 

  • Geopolitical tensions add more ammunition to FX volatility – with the potential to either create more trading opportunities, or disrupt market structure.  


By keeping these key themes in mind, we’re able to form a more structured approach to 2025. Whilst there’s been some appealing moves in the market so far, there’s still plenty of room for trend changes and unexpected volatility. The key going forward is to stick to your trading plan, but expect the unexpected – especially as we begin to see the economic effects of Trumps’ executive orders. 


If you haven’t done so already, check out our post on Economic Indicators here. 


20/02/2025
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