SHANGHAI: China's yuan closed stronger near the strong-side limit of its trading range on Wednesday, supported by a dollar that sagged in reaction to the re-election of US President Barack Obama.
The central bank set its midpoint at 6.3067 per dollar, slightly stronger than Tuesday's fix of 6.3078.
Spot yuan closed at 6.2437 per dollar, one pip above the intra-day strong-side limit.
The exchange rate can rise or fall 1 percent from the midpoint each day.
However, traders said transaction levels were relatively low today, with most customers remaining on the sidelines.
"Trading is still pretty bland," said a trader at a large Chinese bank in Shanghai.
"The election certainly had some influence, but customers are mostly sitting on the sidelines."
The yuan has set repeated historical highs against the dollar in recent weeks, but market observers said the central bank is now trying to guide the currency back into weaker territory to prevent further appreciation - so far with limited success.
The US election and the upcoming Chinese party congress have been wildcard factors complicating the central bank's efforts to establish a new equilibrium.
While long-term economic implications of the US election outcome are complex, there are implications for the dollar side of the dollar/yuan rate.
Analysts said that a second term for Barack Obama - who will be opposed by a Republican controlled-Congress, increases the risk of policy paralysis brought on by the upcoming "fiscal cliff" facing the United States.
This factor, considered alongside the $40 billion the United States is pumping into money markets every month under the "QE3" monetary easing programme, is driving some investors out of dollars.
However, many market observers believe the yuan was also pushed up artificially by Beijing in order to support Obama's campaign, whom many believe will take a less confrontational approach to China that his opponent Mitt Romney.
Romney said he would label China a "currency manipulator" on day one in office.
Economists believe that both the political and market-driven reasons for the yuan's recent historical highs - and its recent habit of repeatedly bouncing off the edge of its trading band - are unsustainable.
On the political front, with Obama re-elected, it removes whatever reasons Beijing had for pushing the yuan upward.
In terms of corporates, their apparent bullishness toward the yuan will be capped by their need to retain hard currency on hand for trade, which will limit the amount of dollars that can be poured into the market.
Offshore 1-year non-deliverable forwards contracts (NDFs) traded in Hong Kong continued to forecast yuan depreciation over the next twelve months, changing hands at 6.3460 at market close.
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