China's yuan weakened against the dollar on Friday for the fifth straight day after strong gains last week, but traders said it could revert to the uptrend soon as Beijing take more steps to cool its economy.
The yuan ended at 7.9980 to the dollar compared with Thursday's close of 7.9924, after the central bank set the mid-point at a weaker 7.9956 versus 7.9948 the previous day. The yuan hit a post-revaluation high of 7.9850 a week ago, but failed to keep up the momentum this week, shedding 0.16 percent since then.
Traders interpreted the slip as a respite before a strong surge in the near term, which could take the yuan well past the psychologically important 7.9900 level again. The central bank has been resorting to administrative measures, such as raising bank reserve requirements, to rein runaway credit.
However, with its economy likely to continue expanding at 10-plus percent for the rest of the year, markets have been speculating on more tightening measure, including another interest rate hike, possibly later on Friday.
The central bank raised its benchmark lending rate to 5.85 percent from 5.58 percent in April. Authorities might also tolerate speedier appreciation of the yuan to address the root cause of excess liquidity, traders said.
"They've tried every trick now but the economy is still racing ahead," said a Shenzhen-based trader. "I think they might have to use the forex tool sooner or later."
The yuan has appreciated a mere 1.4 percent since July 2005 when it was revalued by 2.1 percent and unshackled from a decade-old peg to float within managed bands.