The dollar index stood near a two-month peak against a basket of currencies on Wednesday morning after robust US housing data supported the case for the Federal Reserve to raise interest rates in the near term.
The People's Bank of China set the midpoint rate at 6.5693 per dollar prior to market open, 0.34 percent weaker than the previous fix 6.5468.
Spot yuan opened at 6.5606 per dollar and was changing hands at 6.5638 at midday, easing 0.07 percent from the previous close.
So far this month, the yuan has depreciated about 1.3 percent against the dollar, compared with a 1.5 percent drop in December when the yuan faced massive selling pressure in the wake of the Fed's earlier rate hike.
On Wednesday, the offshore yuan was trading only 0.05 percent softer than the onshore spot at 6.567 per dollar. The spread between those two narrowed over the past two days from 200 pips or so to only 32 pips by midday.
Traders said the gap indicated an alignment between onshore and offshore expectations for the yuan.
Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7455, or 2.61 percent softer than the midpoint.