SHANGHAI: The yuan firmed against the dollar on Tuesday as buying of the greenback by Chinese oil companies petered out, and the US unit weakened against the euro on world markets.
Spot yuan traded at 6.3027 near midday (0400 GMT), 66 pips stronger than Monday's close, despite the central bank setting its midpoint 19 pips weaker.
A surge of dollar buying by oil firms had pushed the yuan lower on Monday afternoon, but the buying tapered off by Tuesday morning.
The yuan also benefitted from the euro's gains on global markets. The dollar index, which is heavily weighted toward the euro, fell overnight, pushing the yuan higher.
"The yuan rose today because the euro rebounded a bit. It is bound to happen this way," said a trader at a joint stock bank in Shanghai.
If the yuan holds at its midday level, it would be the yuan's strongest close in five months, though the currency already touched a five-month intraday high of 6.2945 on Sept 20.
The yuan has gained steadily since hitting a 2012 intraday low of 6.3930 on July 24. But traders say it is likely to meet resistance around 6.30.
"When the rate hits 6.33-34, clients rush in to buy yuan, but it gets down near 6.30, dollar demand picks up," said a trader at a major Chinese state-owned benk in Beijing.
Traders said they expect the yuan to trade in 6.30-6.33 per dollar range in the coming weeks.
Traders are divided about the impact on the market of a one-week holiday in China next week. Some say the holiday increases demand for yuan from corporate clients, while others say clients want more dollars.
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