Exchange Rate Determination Most introductory international economics textbooks use the Uncovered Interest Rate Parity condition for deriving bilateral exchange rates. In other words, it is solely interest rate differential brought about by monetary policy that cause exchange rates to fluctuate, as investors demand/supply more attractive currency, which then adjusts exchange rate till the return in both currencies are equalized.

The question is- how do trade in goods affect this phenomenon? For instance, say China increases money supply, effectively decreasing interest rate, and this causes flight away from China towards American dollars, causing the American dollar to appreciate. China then benefits by improving its Current Account position. However, as the Chinese exchange rate has depreciated, Chinese goods are now cheaper, so more people will demand Chinese goods. Would this not have an offsetting effect on the depcreciation as people now demand the Yuan more?
1st of all, regading your remark


  ... , it is solely interest rate differential brought about by monetary
  policy that cause exchange rates to fluctuate...


That's just because it these models the internet case is isolated (like the joke of economists needed to change a light bulb)

As to your question, its always a combination between interests/ exchange rates and trade:

Per your example:
When China lowers rates, effectively increasing money supply, the Yuan decreases and make exports more profitable
Once exports occur, dollars come back to China, and converted to Yuans, making the Yuan increase back.
To keep exports more profitable to China, a constant increase of money, lower interests rates, are needed. This, in turn, can create local price surges. Essentially the local economy subsidizes exports

What China does though, is not exactly that,  even if similar
China holds its foreign exchange rates low, and its interest higher. That sounds a bit contradicting, but its possible, if China's government absorbs dollars.
So on one hand, Chinese exports are cheap, and on the other hand, the Yuan is a strong local currency. Furthermore, due to yhe e, export accelerated growth, wages and wealth has increased...