SHANGHAI: Spot yuan closed relatively flat on Wednesday in narrow trade but trading volumes were strong and traders saw signs that dollar appetite is returning to the market.
The People's Bank of China (PBOC) set the daily midpoint at 6.1757 per dollar Wednesday morning, down 0.04 percent from Tuesday.
Spot yuan, however, was little changed, closing at 6.1278 per dollar, just eight pips stronger than Tuesday's close, an increase of 0.01 percent.
Transaction volumes were relatively high at over $17 billion.
The traded rate was 0.78 percent away from the midpoint, maintaining a trend that began last week that has seen the spot price back away from the strongest allowable intraday rate.
The exchange rate is currently allowed to rise or fall 1 percent away from the official intraday fix, but officials have said they are preparing to widen the trading band soon as part of a wider package of reforms to China's capital account.
Traders said that by allowing the yuan to rise sharply since April, regulators are attempting to discover the rate at which supply and demand for dollars is balanced, which would be illustrated by a spot rate that trades around the midpoint as opposed to pushing against the strong side of the trading band.
Once they find that position, the PBOC will widen the band, traders said.
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