Global funds are reducing their presence in the offshore yuan options market as yuan volatility falls to near its lowest level in over a decade, causing average monthly trading volume in the first eight months of this year to drop to about $58 billion, down from $95 billion in the same period of 2025 and $142 billion in 2024. According to Bloomberg data, the one-month implied volatility of the USD/CNH pair fell to just 1.6% on Tuesday, lower than the euro-dollar's 5.3% and euro-yen's 6.1%. Hedge fund traders in Hong Kong and the United States said that betting on big yuan moves is no longer attractive due to low volatility and limited profit opportunities. Meanwhile, Dariusz Kowalczyk from BBVA noted that exporters and importers have less incentive to use the options market for hedging. However, onshore options trading volume surged to a record high of nearly $111 billion in June, as hedging costs declined. Despite the PBOC signaling a desire for more yuan flexibility, Lynn Song from ING stated that maintaining low volatility is a high-level strategy that has worked well, and there is no reason to change course.
Banco Bilbao Viscaya Argentaria SA ADR
ING Groep NVLow yuan volatility and PBOC's strategy of maintaining stability reduce demand for hedging, but no clear directional signal for either currency.
