China Shrinks USD Weight; Won Rises, Rupee Wobbles

China Shrinks USD Weight; Won Rises, Rupee Wobbles

Introduction

In the opening days of 2026, two concrete FX developments captured attention across Asian currency corridors. Beijing revised the composition of its CFETS trade-weighted yuan basket, trimming the U.S. dollar and euro shares while raising weights for several regional currencies—including the Korean won. At the same time, the Indian rupee began the year marginally weaker amid corporate dollar demand and holiday-thinned liquidity. Both moves are factual, targeted adjustments with measurable near-term effects for traders, treasuries, and FX strategists.

China’s CFETS Reweighting: What Changed

The adjustments in numbers

Effective January 1, China reduced the dollar’s weight in the CFETS yuan trade-weighted basket from 18.903% to 18.307% and trimmed the euro’s share slightly as well. Counterbalancing those reductions, weights for a handful of regional currencies rose—most notably the Korean won, which moved ahead of the Japanese yen as the basket’s third-largest component.

Practical implications for FX participants

The CFETS basket is a reference for China’s daily yuan fixing and a signal of Beijing’s trade alignments. A lower dollar share means the basket’s implicit valuation mix now places relatively less emphasis on USD movements when deriving the yuan reference level. For market players this translates into three concrete takeaways:

• Hedging strategies tied to the yuan fixing may see modest shifts toward Asian crosses—especially won-sensitive products.
• Portfolio and treasury allocations that use the CFETS weights as a benchmark could reweight exposure away from the dollar and euro toward selected Asian currencies.
• Interbank and trade finance flows involving yuan pairs may change correlation patterns, with regional currencies exerting stronger influence on yuan dynamics.

Think of the basket change as a compass recalibration: the needle still points generally toward major currencies, but now it gives more prominence to nearby coordinates—regional Asian currencies—when setting direction.

Indian Rupee: Small Move, Clear Drivers

Where the rupee stands

The Indian rupee opened the year slightly softer, trading near ₹89.95–₹89.97 per U.S. dollar—about 0.1% weaker versus the previous session. The move is modest and driven mainly by corporate dollar demand and very light market liquidity around New Year holidays. Over the full calendar year 2025, the rupee recorded an approximate 4.7% depreciation; the early-January drift should be viewed against that backdrop rather than as a fresh trend on its own.

Why this matters locally

Daily moves of a few tenths of a percent matter for corporate treasuries, importers, and debt-servicing schedules. Key points to note:

• Corporate dollar demand can temporarily pressure the currency when liquidity is thin—this is a seasonal and operational driver rather than a macro shock.
• Domestic FX reserves and central bank posture (Reserve Bank of India interventions) remain important stabilizers; monitoring official action is essential for near-term risk management.
• Forward hedging costs and short-term FX swap spreads can widen during holiday-thin windows, increasing hedging expenses for large importers.

Cross-Connections and What to Monitor

How the two stories interact

Although the CFETS reweighting and the rupee’s soft open are separate developments, they intersect in operational ways. China’s heavier tilt toward regional currencies could increase trade invoicing and hedging activity in Asian pairs—potentially lifting liquidity and volatility patterns that also affect other regional FX like the rupee. Conversely, localized factors such as India’s corporate flows and calendar-driven liquidity gaps are independent drivers that will continue to shape INR moves irrespective of China’s basket methodology.

Short checklist for FX desks and treasuries

• Reassess hedging benchmarks: If your yuan hedges reference CFETS-based valuations, update models to reflect the new weights.
• Watch Asian cross liquidity: Expect gradually more influence from won- and ASEAN-linked currencies on yuan cross rates.
• Monitor RBI commentary and reserve activity: Small daily INR moves can amplify without central-bank signals.
• Manage holiday liquidity risks: Corporate treasuries should check forward cover and USD funding needs during thin sessions.

Conclusion

China’s adjustment to the CFETS yuan basket is a precise, policy-driven step that elevates the role of particular Asian currencies—most prominently the Korean won—relative to the dollar and euro. The change alters the reference mix used in yuan fixing and has clear operational implications for hedging and allocation. Separately, the Indian rupee’s slight early-year softening reflects routine corporate dollar demand and thin liquidity rather than a sudden macro shift. Both developments are actionable: one alters benchmark composition, the other signals localized funding and liquidity dynamics that require standard risk-management responses.