The yuan opened at its strongest level permitted by the official daily trading band and mostly stayed there through to midday. The People's Bank of China set its daily midpoint at 6.2885 on Tuesday, slightly firmer than Monday's fix of 6.2908.
Spot yuan firmed by the same amount, opening at its top-end limit of 6.2256 versus the dollar and mostly staying there through midday, compared with Monday's close of 6.2279.
The central bank lets the exchange rate diverge by no more than 1 percent from the midpoint it sets each morning.
Volume dropped further to $463 million by midday from an already-thin $489 million by midday Monday. That compares with an average full-day average volume of $13.9 billion in the first nine months of this year.
"The deadlock hasn't much affected corporate real needs for foreign exchange business, so companies are not in a hurry to break it," said a trader at a major Chinese commercial bank in Shanghai.
"The PBOC appears not to care about the lack of speculation in the market, so it also takes a wait-and-see attitude."
Both the PBOC and the market appear to be playing a waiting game, hoping the other will make concessions to break the deadlock. The result is that traders are trading the minimum amount necessary to meet clients' immediate demands.
The PBOC wants to discourage speculation on yuan appreciation by holding its midpoint firm, thereby squeezing appreciation expectations out of the market, traders say.
The market, by contract, hopes the PBOC either sets stronger midpoints, or else buys enough dollars to offer liquidity to the market.
In China's rigid foreign exchange regime, the PBOC has always been the ultimate supplier of liquidity. But traders say the PBOC now appears determined to reduce its interventions in the market, even if it must endure a period of weak liquidity.
In recent weeks, the central bank has appeared to intervene selectively, when market liquidity is very poor.
Spot yuan to has hit its limit for 26 of the last 29 sessions.
While the PBOC uses its midpoint and sometimes its own price quotes to guide the spot rate, it typically conducts intervention via transactions with large state-owned banks, which then pass that liquidity through to the rest of the market. Both the PBOC's intraday quotes and its deals are invisible to other market participants.
The domestic market is flooded with foreign exchange, as companies rush to unload dollars amid the yuan's dramatic comeback since late July.
The yuan now stands 1.1 percent up against the dollar for the year so far, rallying 2.7 percent from its late July low.