The yuan was 0.01% lower at 7.1311 to the dollar by 0355 GMT, after strengthening to 7.1270 in earlier trade. The offshore yuan fetched 7.127 yuan per dollar, down about 0.06%.
Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1072 per dollar, near the 10-month high seen on Friday and 209 pips firmer than a Reuters’ estimate.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
The central bank has been gradually strengthening its daily yuan official guidance since May, suggesting it is carefully managing an appreciation of the yuan, analysts say. “The recent creep higher in the daily fixing looks like the opening act of a managed appreciation against the dollar,” OCBC analysts said in a note.
“Whether this guided appreciation is tied to ongoing U.S.-China trade talks remains unclear, but it does suggest that RMB is transitioning from prolonged stability to a carefully steered grind higher.” The yuan rose roughly 1% against the dollar last month, the biggest gain since May. “The trend is clear — pressure on the yuan to weaken is easing,” analysts at Nanhua Securities wrote in a note, citing a domestic equity market rally and the prospect of the Fed easing rates. Still, the yuan gains are largely driven by sentiment and PBOC’s policy guidance rather than fundamentals, they added.China’s manufacturing activity shrank for a fifth straight month in August, an official survey showed on Sunday, as producers wait for further clarity on a trade deal with the U.S. The dollar’s six-currency index was flat after registering a 2.2% fall in August, with U.S. labour market data this week possibly influencing the size of the Fed’s expected rate cut later this month.
Elsewhere, the Hong Kong Interbank Offered Rate (HIBOR) continued to rise across the board, with the overnight tenor climbing to 4.647%, the highest level since Dec.
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