Yuan hits more than 1-week high as strong midpoint, export surprise lift sentiment
The onshore yuan firmed to 7.1606 in early trade, the strongest level since July 3, before reversing some of the gains.
China's exports regained some momentum in June while imports rebounded, as exporters rushed out shipments to capitalise on a fragile tariff truce between Beijing and Washington ahead of a looming August deadline.
Prior to the market opening, the People's Bank of China set the midpoint rate at 7.1491 per dollar, 253 pips firmer than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
The PBOC lowered the fixing to the stronger side of the 7.15 mark for the first time since Nov. 8, 2024 last Friday, suggesting a possible shift in its tolerance for a stronger yuan.
The spot yuan opened at 7.1606 per dollar and was last trading at 7.1693 per dollar as of 0220 GMT, 9 pips firmer than the previous late session close and 0.28% weaker than the midpoint.
China's yuan inches higher on firmer PBOC guidance even as dollar rises
'USD-CNY fixing started to grind lower following the trade deal, even ticking lower during USD strength from geopolitical tensions in the Middle East. This highlighted the PBOC's push towards more RMB strength,' said HSBC analysts in a note.
Barring a breakdown in the U.S.-China trade truce, theanalysts expect the yuan to extend its gains, supported by a gradual shift away from the U.S. dollar and the PBOC's increasing comfort with a firmer currency.
President Donald Trump on Saturday threatened to impose a30% tariff on imports from Mexico and the European Union starting on August 1. Market reaction has been largely muted, with the dollar index, which measures the greenback against a basket of currencies, up 0.1% on Monday.
'This underscores how much markets are discounting the tariff threats, amidst expectations that concessions will be built in closer to the deadline,' said Citi analysts in a note.
The offshore yuan traded at 7.1711 yuan per dollar, up about 0.06% in Asian trade.
China's economy is expected to have slowed down in thesecond quarter from a solid start to the year as trade tensions with the United States added to deflationary pressures, reinforcing expectations that Beijing may need to roll out more stimulus.
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