The yuan set a post-revaluation high against the dollar for the fifth straight session on Monday as the central bank largely stayed out of the market, apparently willing to allow appreciation at a faster pace than ever before.
But traders said they believed the People's Bank of China remained keen to encourage two-way trade in the yuan instead of one-way speculation, so it might engineer a temporary pullback at any time. That could make trade volatile in coming weeks.
The yuan closed at its intra-day high of 7.9385 to the dollar, its highest level since it was revalued by 2.1 percent and depegged from the US currency in July 2005. The previous high, set in intra-day trading on Friday, was 7.9524. Monday's rise of 0.19 percent from Friday's close of 7.9532 was the yuan's fourth biggest daily gain since the depegging.
The Chinese currency has now risen 0.79 percent since August 15, the fastest rise in a three-week period since the 2005 policy change. That has brought its total gains since the start of this year to 1.66 percent, compared with 0.49 percent in the period between the depegging and the end of last year.
Dealers said the yuan could meet stiff resistance at the next psychologically important level of 7.9300, and could fall back as far as 8.0000 if the central bank wanted to impress upon the market its desire for two-way fluctuations in the context of a long-term uptrend.
The yuan may rise or fall 0.3 percent from its mid-point each day, but it has moved only a small fraction of that range in most trading sessions since the floating rate regime was introduced. At Monday's close, it had risen 0.14 percent from the day's mid-point, set by the central bank, of 7.9499.