A worker counts Chinese currency renminbi banknotes at a bank in Tancheng county of Linyi city, East China's Shandong Province. File Photo:Xinhua

The yuan continued to strengthen on Wednesday as the US dollar remains on the defensive.

The yuan's daily fixing was set at 6.4099 against the greenback on Wednesday, gaining pace from the previous day's 6.4283, according to data from the State Administration of Foreign Exchange.

The offshore yuan rose above the 6.4 mark, hitting 6.3828 around 8pm Beijing time on Wednesday, the highest since June 2018.

The Chinese currency's continued strength was underpinned by the US dollar index which hovers around 89.70 challenging its monthly lows. 

Buoyed by the yuan's gain, net purchases of Chinese mainland shares, through northbound trading linkups between the mainland and Hong Kong markets, continued into Wednesday, with 9.1 billion yuan ($1.42 billion) in net inflows after 21.72 billion yuan in net purchases on Tuesday.

The benchmark Shanghai Composite Index closed up 0.34 percent on Wednesday at close to 3,600 points, following a 2.4 percent rally in the previous day.

The continuation of the yuan's strength came after officials assured the markets that the yuan will be kept at a reasonable and balanced level.  

Since the start of the year, the yuan's exchange rate has moved in both ways and remained basically stable at a reasonable and balanced level, read a question-and-answer post on the central bank's website on Sunday citing Liu Guoqiang, Deputy Governor of the People's Bank of China (PBC).

Presently, the country's foreign exchange market remains independent and balanced with the yuan's exchange rate determined by the market and currency expectations staying steady, Liu said, noting that the yuan's future moves would be contingent upon market supply and demand as well as changes in the international financial market.

Stressing that two-way fluctuations would become the norm, Liu announced that the foreign exchange system based on market supply and demand, adjusted with reference to a basket of currencies, will be improved by the PBC. 

The central bank will focus on guiding expectations and have the exchange rate acting as an automatic stabilizer to adjust the macroeconomic factors and international balance of payments, ensuring that the yuan's exchange rate will be kept basically stable at a reasonable and balanced level, according to Liu.