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CHINA: Hedging Markets Lean In to Strong CNY Bias

CHINA

CNY's overarching spot strength remains a focus (as noted earlier today: "USD/CNH Hits Lowest Level Since June '23, Exporter Demand Eyed"), with the break below late Dec-23 levels in USD/CNY holding into NY hours. Options markets are taking note, with notional traded across USD/CNY hedges well above average for this time of day, despite the quieter broader market.

  • Over $2 in USD/CNY vanilla puts have traded for every $1 in calls so far Friday, with outsized demand for 7.05, 6.95 - and even 6.83 puts strikes dominating ahead of the NY crossover. This helps keep the pressure on the front-end of the USD/CNY risk reversals curve - despite most maturities settling back above the early August lows.
  • Most of today's trades target a mid-to-end November expiry, thereby capturing the next two Fed decisions as well as a potential extension of the liberal approach to the CNY fix as noted in our coverage earlier this week suggesting a suspension of the counter-cyclical factor in the daily fix.
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