YUAN STRENGTH
After the Fed's rate hike, the central parity rate of the yuan strengthened 87 basis points to 6.7852 against the dollar Thursday.
The recent appreciation of the yuan has changed expectations of its weakening. Measured by the central parity rate, the yuan has appreciated 2.24 percent so far this year, with more than half of that seen in the past month.
Under China's market-based, managed floating exchange rate regime, the yuan can rise or fall by 2 percent against the dollar from the central parity rate each trading day. The central parity rate is a weighted average of quotes from dealer banks, and follows a formula of previous day's closing rate and changes in a basket of currencies.
To curb swings on the forex market, China announced a plan in late May to add a "counter cyclical factor" into the pricing formula of yuan-dollar central parity rate.
Analysts considered the "counter cyclical factor" one of China's precautionary measures for the Fed's rate hike.
It remains unclear how and when the "counter cyclical factor" will be used, or whether it has already been implemented.
Given the weakening of the greenback, reduced capital outflows from China, and ongoing pressure from China's major trade partners, UBS economist Wang Tao expected the yuan to stay relatively strong against the dollar for the rest of the year.
STABLE SOFTENING
Despite emerging downward pressure, China's economic growth remained stable this year, enabling policy makers to maintain the prudent and neutral monetary stance.
Although the stance will remain unchanged, Ren Zeping expected no further tightening in the second half of the year as growth may have already peaked. "The monetary policy will be likely to be neutral with an easing bias."
Fresh data showed China's employment, industrial output, and retail sales all held steady in May, while exports grew faster than expected. However, growth of fixed-asset investment and property development investment slowed, pointing to a slight moderation of growth momentum.
The slowdown is set to be steady, not spiraling, as exports remain robust and the government continues to buoy demand through infrastructure spending, said Tom Orlik, chief Asia economist with Bloomberg.
The Chinese Academy of Social Sciences, a government think tank, expected the economy to grow 6.7 percent, 6.6 percent and 6.5 percent in the second, third and fourth quarter, respectively.
China's GDP expanded 6.9 percent in the first quarter of the year. It targets an annual growth rate of around 6.5 percent for 2017.
