Sustained bullish sentiment has driven China's currency, the renminbi, to a record high for three straight days, triggering expectations the yuan could reach 6.2 against the dollar by the year end.
But some analysts are less optimistic, believing it will depreciate, following the United States presidential election and the 18th National Congress of the Communist Party of China, which closed on Wednesday.
The People's Bank of China, the central bank, has been raising the reference rate of the yuan against the dollar for seven straight days. On Wednesday, it set the midpoint at 6.2881, the highest level since May.
On the spot market, the currency soon moved to hit its strong-side limit at 6.2252 on the day, the strongest level since China opened its domestic currency market in 1994.
"We think market forces have played a much bigger role than the government in recent yuan appreciation. The third round of quantitative easing in the US, China's growth recovery, as well as widening trade surplus are probably among the key driving forces," said Yao Wei, China economist at Societe Generale CIB.
China's capital account is also more open than before and so currency movement becomes more self-enforced as a result of market expectations, she said.
The yuan has appreciated more than 1 percent so far this year, reversing a depreciation of as much as 1.6 percent in the year by late July.
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