Traders are also closely monitoring the progress of the Sino-U.S. trade talks. U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are in Beijing for a fresh round of negotiations.

"The market is fixated on the trade talks," said Huang Yi, a trader at China Guangfa Bank in Shanghai.

He added that as China opens its capital markets wider, the yuan would aided by fresh capital inflows in the mid- to long-term.

Despite a weaker midpoint rate set by the People's Bank of China, the yuan was changing hands at 6.7246 around midday, 152 pips firmer than the previous late session close against the greenback.

The Bloomberg Barclays Global Aggregate Index will include Chinese bonds starting next week. The inclusion process will take 20 months, eventually taking weight of China's onshore bonds in the index to 6.03 percent, Bloomberg said in January.

UBS Asset Management estimate this phase of inclusion will introduce $250-$500 billion of passive money alone, and possibly trillions of dollars if active money is counted.

"We expect the RMB to strengthen as demand for RMB assets grows," said Hayden Briscoe, Head of Fixed Income, Asia Pacific, UBS Asset Management.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.57, firmer than the previous day's 95.41.

The global dollar index fell to 97.2 from the previous close of 97.202. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.762, 0.42 percent away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.