China's yuan firms despite dollar rebound

SHANGHAI: China’s yuan strengthened on Monday, despite a rebound in the dollar triggered by hawkish comments from the US Federal Reserve on Friday, as analysts say exporters likely took advantage of the bounce to settle dollar receipts.

“The yuan’s pace of appreciation has slowed, but the direction has not changed,” Huatai Futures said in a note.

 The onshore yuan changed hands at around 6.7200 per dollar around noon, 0.1% firmer than the previous session’s close.

It is hovering around the strongest level in 3-1/2 years, and has strengthened roughly 0.5% against the dollar this month.

The dollar index steadied at a one-week high on Monday, following Friday’s 0.6% jump triggered by hawkish remarks from Fed Chairman Kevin Warsh.

Warsh said the US central bank will “have work to do” if policymakers don’t get the confidence they need that inflation is heading down to 2%.

Investors were heartened by Warsh’s stated resolve to tame high inflation, but many on Wall Street remained unclear about how the Fed will react to economic changes in the months ahead.

The message “adds a layer of policy support to the dollar, but it has not kicked off a fresh up-cycle for the dollar,” Huatai Futures said, adding the market is just reassessing the odds of interest rate hikes.

 “The yuan remains supported by exporters’ dollar selling and the central bank’s mid-point rate.”

On Monday, the People’s Bank of China set the yuan’s mid-point guidance rate largely steady at 6.7828 per dollar.

Nanhua Futures echoed that the dollar rebound was mainly triggered by Warsh’s hawkish message, and could provide a good timing for Chinese exports to sell.

Despite the dollar strength, “the yuan exchange rate remains resilient,” the brokerage said in a note.

“Now could be a window of opportunity for companies to settle their dollar receipts.”

Official data on Monday showed China’s factory activity improved in August on stronger demand but remained in contraction for a second straight month, while services and construction activity stayed weak, underscoring imbalances in the economy.