China's yuan steady as dollar rebounds, investors eye US CPI

SHANGHAI - China's yuan maintained its stability versus the US dollar on Friday, as the greenback experienced a rebound and the central bank set a firm fixing, according to investors who were exercising caution ahead of the release of US inflation data. The spot yuan began at 6.7119 per dollar and later traded at 6.7109, marking a 6 pip increase from the previous session's close.

The dollar settled close to its highest levels in the past week, while the yen weakened for the second consecutive day as concerns over potential energy supply disruptions in the Middle East led to rising bond yields and oil prices.

Despite the dollar's strength, Asian currencies have exhibited a remarkable level of resilience, though analysts remain cautious about its continued strength in the near future. Asian FX and rates markets have been relatively calm, but given the current market drivers, analysts believe this resilience may not persist at least in the short term. Implied FX volatility in the USD/CNH pair has reached multi-decade lows, suggesting that the market's current positioning might be justified.

The yuan has risen by 0.1% against the dollar this month and is 4.2% higher this year. Prior to the market opening, the People's Bank of China fixed the midpoint rate at 6.7743 per dollar, which is the strongest since February 6, 2023, and 569 pips weaker than a Reuters estimate. The People's Bank allowed the spot yuan to trade within a 2% range of the fixed midpoint each day.

Deputy central bank governor Lu Lei stated on Thursday that China would maintain a stable yuan and had no intention of seeking trade advantages through currency depreciation.

Investors are now focusing on US consumer price index data, which will be released later on Friday, just before the Federal Reserve's meeting next week. Expectations for a rate hike have already increased after US producer prices rose in August due to higher costs for goods, airline fares, and hospital services. The offshore yuan traded at 6.7115 per dollar, up about 0.04% in Asian trade. The dollar index, which gauges the greenback against a basket of six currencies, increased by 0.030% to 99.11.