Optimism toward the Chinese yuan is growing. The tariff shock has passed, and the world’s second-largest economy was affected less than expected so far. Rising exports to Asia, Africa, Europe, and even India helped offset some of the negative impact. In April, the GDP growth forecast for 2025 was cut to 4.2 percent, but in recent weeks, the median estimate gradually has been revised up to 4.8 percent. The forecast for 2026 is currently 4.2 percent but is also likely to be revised higher. 

Tariffs have also produced an unintended side effect for the US: rising expectations of de-dollarization. Both the EU and China have started to take steps toward filling the potential gap left by a reduced role for the dollar. The EU is investing in AI and defense while leveraging its rules-based, stable environment, while China is focusing on the AI race and deepening political ties with fast-growing economies. A recent move to become custodian of foreign sovereign gold reserves is part of this strategy. 

An active commodity market and rising interest in China’s stock market could further strengthen China and support the yuan. 

(USDCNY Risk Reversals) 

USDCNY risk reversals show that yuan optimism has spread across all time horizons. The steady decline is not limited to the short term,  even over a 12-month period, the options market does not expect USDCNY to bounce back strongly. 

USDCNY 

USDCNY is now trading below the trendline from early 2023. The weak dollar index is adding to the downward pressure, but further moves may depend on continued optimism about the Chinese economy and de-dollarization. 

There is also a downward trend channel that began in early 2025, which was briefly violated during the April tariff frenzy. As long as this channel holds, yuan appreciation is likely to continue. For now, the main medium-term resistance is at 7.20. 

(China Imports by Country) 

According to 2024 yearly data, China’s largest trade deficits are with Australia and Brazil, while most of its imports come from South Korea, the US, and Japan. A strong Chinese economy also implies upward pressure on commodity prices. 

Because of these trade dynamics and the potential lift in commodity prices, the Australian dollar (you can check our earlier AUDUSD post), Korean won, Brazilian real, and to some extent the Japanese yen are likely to benefit from a yuan rally if our base case plays out.