The central bank set the yuan's midpoint at 6.3173 on Wednesday, 38 points stronger than Tuesday's fix but 455 points stronger than the closing spot price, indicating entrenched resistance to the rising fix.
Spot yuan continued to trade within a narrow range for a second day, opening within 12 pips of Tuesday's close then gradually firming to close at 6.3554, up about 1.7 percent from its opening price.
Although Monday saw high volatility on paper - at one point the currency traded at a seven-month low against the dollar - the transaction was an outlier. The average exchange rate has actually been flattening out for the last week.
A trader at a foreign bank in Shanghai told Reuters that customers had been stepping in to buy yuan when it sank below 6.37, creating a temporary floor.
But the yuan, which set a record monthly dive against the dollar in May, remains under depreciation pressure.
Investment-flow data published by Morgan Stanley in June showed that the global private sector has $2 trillion less dollars than it needs as governments sequester dollars in foreign reserves and eye developments in Europe.
Traders told Reuters that in addition to structural demand for dollars, recent low oil prices had increased appetites for the currency. Benchmark oil prices have been steadily falling since May and are now hovering near an eight-month low.
A research note by Standard Chartered published on Tuesday said that in addition to setting relatively higher midpoints as a form of "window guidance" to the market, the central bank may also be more actively intervening to keep the yuan from diving against the dollar.
The note cited traders, who said Monday morning's abrupt drop in the yuan against the dollar did not stem from an overdue reaction against a stronger dollar index but rather to intervention.
They added that according to the accumulated difference between the trade surplus and corporate dollar sales, Chinese corporates appeared to have taken an excessively short net dollar position that they may need to unwind, which would put downward pressure on the yuan.
"The concern for the central bank is that more CNY weakness would further shift onshore expectations and influence corporate China's conversion ratios, which would in turn lead to further CNY weakness. The PBOC would much rather keep things stable for the moment," wrote report authors Stephen Green and Wei Li.
Despite widespread consensus among economists that the yuan will appreciate slightly by the end of the year, the forwards markets continue to imply depreciation.
Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.4150 and offshore deliverables of the same tenor traded at 6.4265 at close. Onshore yuan forwards also suggested depreciation, bidding at 6.3996.
Offshore spot yuan continued to trade near but below the onshore spot at 6.3630 per dollar at close.