Chinese President Xi Jinping is expected to give a speech on in Beijing on Tuesday to mark the 40th anniversary of the opening up of China's economy, diplomatic sources told Reuters. And the central economic work conference is likely to start later this week, where key growth targets and policy goals for 2019 will be discussed.
In the United States, the Federal Reserve is set to raise interest rates by 25 basis points at its Dec. 18-19 meeting and possibly indicate a trajectory for further tightening expectations, which could set the tone for currencies and other financial markets in coming months.
"The upcoming FOMC meeting and China's policy-setting meeting have been the most actively discussed topics around the markets this morning," Stephen Innes, head of trading for Asia Pacific at OANDA in Singapore, said in a note. "And both events have a smoothing effect on risk sentiment."
Innes and traders expect further stimulus measures from China's policymakers to be announced after the meeting to boost economic growth.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8908 per dollar, 158 pips or 0.23 percent weaker than the previous fix of 6.875.
In the spot market, the onshore yuan opened at 6.9026 per dollar and was changing hands at 6.8975 by midday, 125 pips firmer than the previous late session close.
Spot yuan swung in a thin range of around 80 pips on Monday morning, and such price swings had prompt some market participants to make multiple intraday trades for quick profit.
Trading volume surged as a result to $20.653 billion as of midday, compared with about $15 billion yuan for a normal half-day volume.
Traders said all eyes were now on the upcoming meetings and they did not want to bet on the yuan's direction.
Several traders said they did not see state-owned banks stepping into the market to prop up the yuan to firmer than the
key 6.9 per dollar.
State banks usually act on behalf of the central bank in China's foreign exchange market.
A Reuters poll suggested that wagers on the yuan weakening declined by half as trade talks between Washington and Beijing gained traction.
Many economists and analysts, however, believe that China's economy may face increasing downward pressure next year due to a slowdown in consumption and exports.
Chen Xingdong, chief China economist at BNP Paribas, told reporters that he expects full-year GDP growth to reach 6.6 percent this year, while it will gradually slow to 6.2 percent in 2019 and 6.0 percent in 2020.
Chen attributed rising downside risks to a combination of both cyclical and structural factors including side effect from supply-side reforms, impaired confidence at private business and external shocks from the Sino-US trade war.
The offshore yuan was trading at 6.8963 per dollar as of midday.