The yuan rose to a 17-year high yesterday on a weak US dollar as the Federal Reserve said it may provide more stimulus, which could lead to more funds seeping into emerging markets like China.
The local currency touched a intraday high of 6.4563 against the US dollar yesterday in Shanghai, the strongest level since China unified official and market exchange rates at the end of 1993. The yuan ended at 6.4576 yesterday, up from Wednesday's close of 6.4676, according to the China Foreign Exchange Trade System.
The People's Bank of China set the central parity rate at a record high of 6.4640 yesterday.
"The yuan is strengthening against the greenback on a broadly weaker US dollar on the Fed's hint that a new round of stimulus, or quantitative easing 3, may happen," it said.
US Federal Reserve Chairman Ben Bernanke said that the Fed may need to undertake a new round of easing if the US economy weakens and inflation moves lower.
Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole, said a more valuable yuan can also help China tame inflation by trimming the cost of imports.
The bank expected China to hold its interest rates increase and allow a more valuable yuan and reserve requirement ratio increases to curb inflation, which rose to a three-year high of 6.4 percent in June.
The bank also expected the local currency to rise to 6.3 against the US dollar at the end of this year. The local currency has gained 5.7 percent since June 2010, when China resumed yuan appreciation, to deal with the global financial crisis.