SHANGHAI: China's yuan closed slightly lower on Thursday for the second day on the back of an overnight rally in the dollar in global markets.
But the yuan is likely to retain its recent strength as central bank data showed capital continued to flow into the country on a large scale.
Traders said the inflows have produced an abundance of dollars in the market that nobody appears to want.
Spot yuan closed at 6.1492 against the dollar, slipping from 6.1459 at Wednesday's close.
The People's Bank of China and commercial banks bought 294 billion yuan ($47.9 billion) worth of foreign exchange on a net basis in April, marking the fifth straight month of net purchases, implying a rise in money inflows.
"There is still an abundance of dollars in the market, partly because companies are willing to sell them on expectations of further capital inflows," said a trader at a major Chinese state-owned bank in Beijing.
"So despite the yuan's slight weakening this week, its recent strengthening trend is expected to remain intact in the near term."
The People's Bank of China (PBOC) fixed its midpoint at 6.2096 before trade began, mildly weaker than Wednesday's 6.2070, to reflect a rally in the dollar index overnight that saw it hit a near 10-month high against a basket of currencies, traders said.
The central bank has guided the yuan to a slew of record highs since early April, but the rally paused while the dollar consolidated after breaking through a key resistance level.
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