Offshore yuan traders and hedge funds have quietly been buying the currency since it breached the symbolic 7-per-dollar mark at the end of 2025, even as larger institutional asset managers remain reluctant to follow. On January 15, 2026, the offshore renminbi (CNH) was trading near 6.96 to the dollar, and a growing number of event-driven funds are positioning for a sharper appreciation if the US dollar weakens further.
Some hedge fund managers have made aggressive reallocations. One multi-strategy macro manager raised his fund's exposure to yuan assets in its emerging-market currency sleeve from 10% to 25%, planning to add Chinese government bonds each month via Bond Connect and to capture both coupon and potential currency gains. Others have bought out-of-the-money call options in the Hong Kong NDF market: six-month strikes at 6.70–6.80 and even 12‑month strikes at 6.50, structures that would pay off handsomely if a Fed-induced dollar rout materialises.
The rationale is straightforward. China’s external position rebounded in 2025 — with trade surplus headlines exceeding $1 trillion — while the dollar softened last year (the dollar index fell roughly 9.5% in 2025) and the yuan recovered about 4.6% against the dollar. Hedge funds argue there is ‘catch-up’ upside for the yuan and that an event such as outsized Fed rate cuts or a sudden flight into US Treasuries would sharpen the move.
Yet the market is split. Large global asset managers and institutional allocators are watching but not rushing in. They point to governance and process constraints, the yuan’s partial capital account controls, and uncertainty over whether China’s trade and growth momentum are durable. Investment committees, accustomed to global asset allocation frameworks, prefer to treat yuan exposure as a modest satellite position rather than a core allocation.
Market signals are mixed. One-year USD/CNY forward swap points closed at -1,196 basis points on January 15 — implying a one-year implied rate near 6.8495 rather than a sub‑6.80 view. That suggests market participants, in aggregate, are not fully pricing an aggressive yuan rally in the next 12 months despite pockets of bullishness in offshore derivative markets.
The divergence between nimble hedge funds and large, cautious allocators matters because it affects the scale and velocity of any currency move. Hedge funds can monetise short-term event risk with options and NDFs; big asset managers would provide durable, large-scale demand for yuan assets only if they see a persistent reweighting case tied to China's long-term macro performance and regulatory clarity.
For China, an offshore-led rally could be double-edged. A sharper CNH appreciation without equivalent onshore strength complicates the People’s Bank of China’s management of two markets, risks cross-border capital flows volatility, and could force authorities to adjust policy or communication. For global investors, the current split highlights an opening for tactical gains but also a reason to maintain disciplined hedging and to watch US monetary policy and Chinese trade data closely.
In the short term, the path for the yuan will hinge on three variables: the Fed’s policy trajectory and the risk of a surprise policy loosening, the sustainability of China’s trade surplus and growth recovery, and Beijing’s tolerance for currency volatility. If hedge funds’ event-driven bets come to pass, they could trigger a faster appreciation; if not, premia paid for options and aggressive positions could produce steep losses for quick-money players while larger managers continue to wait on the sidelines.