Many market watchers believe a firmer yuan could provide a better atmosphere for discussions as President Donald Trump has repeatedly criticised Beijing's managed currency regime, saying Beijing is manipulating the yuan to gain a trade advantage.
Teams led by Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer will meet in Wasington on Jan.30-31, seeking a way to end their bruising trade war. US Treasury Steven Mnuchin said last week that currency issues would be on the agenda.
Early on Monday, Chinese banks were seen selling dollars in the spot market to prop up the yuan, three traders said.
"No less than two major Chinese state banks were selling in the market," said one of the traders, adding the dollar selling eased when the spot yuan rose to 6.7250 per dollar.
Traders believed the state banks' moves were due to a combination of stop-loss orders and preparations for the trade talks. Chinese authorities typically tend to keep the yuan steady during sensitive political events.
State-owned banks usually act on behalf of central bank in China's foreign exchange market, but they could also trade for their proprietary accounts.
Prior to the market opening on Monday, the People's Bank of China (PBOC) set the midpoint rate at 6.7472 per dollar, 469 pips or 0.7 percent firmer than the previous fix of 6.7941.
Monday's official guidance rate was the strongest level since July 19, 2018, while the move was the biggest rise in percentage terms since early December.
In the spot market, the onshore yuan opened at 6.7429 per dollar and jumped to a high of 6.7225 at one point, the highest level since July 19, 2018.
As of midday, the onshore yuan was changing hands at 6.7300, 185 pips stronger than the previous late session close and 0.25 percent firmer than the midpoint.
Its offshore counterpart also strengthened on Monday morning. The offshore yuan was trading at 6.7391 per dollar at midday.
Gains in the yuan also reflected the losses in the greenback. The dollar is not far off more than one-week lows as financial markets shift their attention to this week's Federal Reserve rates-setting review with traders wagering policymakers would signal a pause to their tightening cycle.
One of the three traders pointed out that some bargain hunting for cheaper dollars appeared at around 6.7250, after state bank support ebbed. Such dollar demand trimmed the gains in the yuan.
Analysts at China Construction Bank (Asia) said in a note on Monday that they see strong resistance at 6.72, which is the 200-day moving average for the onshore spot yuan.