China's yuan firms despite dollar rebound

Shanghai saw China's yuan strengthen on Monday, despite a rebound in the dollar, according to analysts. The Federal Reserve's hawkish comments on Friday triggered the dollar's rise, but exporters might have taken advantage of the bounce to settle dollar receipts. Huatai Futures stated that the yuan's pace of appreciation has slowed, but its direction has remained unchanged.

The onshore yuan reached around 6.7200 per dollar around noon, a 0.1% increase from the previous session's close. It is currently near the strongest level in 3-1/2 years and has strengthened about 0.5% against the dollar this month. The dollar index remained steady at a one-week high on Monday, following its 0.6% jump on Friday due to Federal Reserve Chairman Kevin Warsh's hawkish remarks.

While investors were encouraged by Warsh's determination to curb high inflation, many on Wall Street were uncertain about the Fed's future actions as economic conditions change. The People's Bank of China set the yuan's mid-point guidance rate largely steady at 6.7828 per dollar on Monday. Nanhua Futures suggested that the dollar rebound was primarily driven by Warsh's hawkish message and could provide a favorable opportunity for Chinese exports to sell their goods.

Despite the dollar's strength, the brokerage noted that the yuan's exchange rate remains resilient. Official data on Monday revealed that China's factory activity improved in August due to stronger demand, but it continued to contract for a second consecutive month, while services and construction activity remained weak, highlighting the economic imbalances in the country.