HONG KONG,: China's yuan edged higher against the dollar on Monday, holding firm even as the greenback hovered near a two-month peak against some of its major peers ahead of key trade and inflation data due later this week.
The yuan last traded 0.06% higher at 6.7837 to the greenback after weakening to as low as 6.79 in earlier trade, its weakest level since May 22. The offshore yuan traded at 6.786 yuan per dollar, up about 0.07% in Asian trade.
"The yuan's intraday directional moves are broadly tracking the dollar index but with notably lower volatility. Steady demand for FX settlement and hedging remains a key anchor for its relative stability," analysts at CICC said in a note.
"If the dollar leans toward a short-term rebound, the yuan may drift into a range-bound mode, but any depreciation should remain limited."
The U.S. dollar was a shade weaker after hitting a two-month high against the euro and Australian and New Zealand currencies on Monday, as a blowout U.S. jobs report on Friday sent traders ramping up bets on a Federal Reserve rate hike this year.
The yuan is 3.1% firmer against the dollar this year, making it one of the best-performing emerging market currencies since the outbreak of the Iran war, even in the face of broader dollar strength.
Its resilience suggests that the drivers of the exchange rate have shifted beyond the interest rate differential, increasingly reflecting stronger FX settlement flows and improved sentiment toward yuan-denominated assets, analysts at Huatai Futures said in a note.
"While the dollar has near-term support and the yuan faces corresponding pressure, the yuan still has room to chart its independent trend as long as real-money flows do not deteriorate."
Data releases this week, including China's money supply, credit, trade and inflation figures, will offer fresh clues on the health of the world's second-largest economy and could set the tone for yuan direction, they added.
Prior to the market opening, the People's Bank of China set the midpoint rate at 6.8198 per dollar, 248 pips weaker than a Reuters' estimate.
The central bank has been setting softer-than-expected midpoint fixings, a move that market participants widely interpreted as an attempt to slow the yuan's rise.
The spot yuan is allowed to trade 2% either side of the fixing each day. Several Chinese banks have raised dollar deposit rates in recent weeks, sources told Reuters, in a move likely aimed at slowing the pace of yuan appreciation.
Elsewhere, oil prices were up more than $2 a barrel on Monday after Israel on Sunday launched renewed strikes on Lebanon, eroding hopes for an end to the wider war and reopening of the Strait of Hormuz. - Reuters
