SHANGHAI: The yuan closed higher on Wednesday as corporates sold dollars, which had flooded in since China's onshore market resumed trading on Monday after a week-long holiday, traders said.
The post-holiday influx of dollars had put off a long-anticipated correction in the yuan, they said, and had helped the Chinese currency defy a rally in the dollar in global markets.
Spot yuan closed at 6.2833 versus the dollar, up from Tuesday's close of 6.2878 and within an arm's reach of 6.2812 hit on Monday, which was its highest level since China set up the domestic foreign exchange market in 1994.
It hit an intraday high of 6.2832 in the last minute of trade and a low of 6.2899 in the early session.
"Dollar selling was heavy whenever the yuan approached 6.29," said a dealer at a European bank in Shanghai. "As trading indicates the yuan has little potential to fall, companies tend to bid the yuan at a higher level."
The yuan hit the all-time high on Monday after scoring its biggest monthly gain this year in September, partly because the US Federal Reserve's launch of a third round of quantitative easing (QE3) sparked strong interest in riskier assets such as emerging market currencies, while depressing the US currency.
Before Wednesday's trading began, the People's Bank of China set the yuan's midpoint at 6.3449, slightly weaker than Tuesday's 6.3441.
The central bank has set a slew of midpoints much weaker than the yuan's trading levels since mid-September, in what traders said was a sign that the authorities, worried by China's weakening exports, were trying to prevent renewed speculation on yuan appreciation after the Fed's QE3.
Traders said the corporate dollar selling helped offset strength in the dollar index, which rose above 80 in Asian trade on Wednesday, its strongest level since mid-September when the Fed announced QE3.
Despite the yuan's recent strength, 20 analysts in a Reuters poll published on Tuesday forecast the yuan was likely to weaken slightly by the year-end before returning to a path of gradual appreciation that should see it gain around 1 percent over the coming 12 months.
The median forecast saw the yuan at 6.30 to the dollar by the end of December 2012, before rallying to 6.23 to the greenback by the end of September 2013.
China's exports grew 2.7 percent year-on-year in August, below the 3 percent forecast in a Reuters poll and much weaker than an official target of 10 percent increase for all 2012.
The government will announce trade data for September on Oct. 13 and gross domestic product growth for the third quarter on October 18.
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