China's yuan closed up slightly against the dollar on Wednesday and traded mostly above the psychologically important 6.8400 level, guided by the daily reference rate fixed by the Chinese central bank. The central bank set the yuan's mid-point against the dollar at 6.8396 before trade began on Wednesday, marginally below Tuesday's reference rate of 6.8385.
The central bank appeared reluctant to allow the yuan to fall below the key 6.8400 mark despite a two-day 2.8 percent jump in the dollar against a basket of major world currencies on Monday and Tuesday. Over the past month, the central bank has kept the mid-point in a tight range of 6.8322 to 6.8399 as it seeks to prevent big capital outflows from China amid weakness in other Asian currencies.
"The market took its cues from the central bank," said a dealer at a US bank. "In addition, trading has become very thin because many traders have already gone on holiday."
The domestic market, the China Foreign Exchange Trade System, will be closed all next week for the Lunar New Year holiday. Spot yuan closed at 6.8378 against the dollar, up slightly from Tuesday's close of 6.8385, after moving in a narrow range of 6.8375 to 6.8427.
Dealers said most tractions were done above 6.8400. Offshore, one-year non-deliverable forwards rose slightly to 7.0470 in late Wednesday trade from 7.0450 late on Tuesday,, implying yuan depreciation over the next 12 months from the day's spot mid-point of 2.94 percent, little changed from the 2.93 percent implied on Tuesday.