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China's yuan advanced to a record high against the U.S. dollar for a third consecutive trading day on 2 May, but the currency is expected to rise more slowly over the long haul as economic growth weakens and trade surplus narrows.
The central parity rate of the yuan, or Renminbi, strengthened 117 basis points to 6.2670 per U.S. dollar on Wednesday, according to the China Foreign Exchange Trading System. It followed record highs of 6.2829 and 6.2787 in the previous two trading days.
The movement was mainly caused by recent softening of the U.S. dollar and the euro and the yuan will continue to climb this year, according to Zhao Qingming, senior researcher with China Construction Bank.
However, the currency is under less pressure to appreciate than before as China improves its balance of international payments, Zhao said.
China has been pressed by its trade partners to revaluate the yuan to reduce trade imbalances, but Chinese authorities say the currency is nearing a reasonable and balanced level now.
"The foundation for the yuan's appreciation in the past decade has shifted significantly," said Liu Yuhui, a financial researcher with the Chinese Academy of Social Sciences, a government think tank.
China posted a trade deficit of 31.48 billion U.S. dollars in February, its largest in a decade, before returning to a surplus in March.
Current account surplus dipped to 2.8 percent of the gross domestic product value in 2011, the lowest level since 2005, figures from the State Administration of Foreign Exchange show.
The increasing likelihood of economic moderation and lower return on invested capital will greatly ease the pressure for yuan appreciation, said Liu.
He also noted that Western countries will see their domestic demand slump in a long coming period as a result of the global financial crisis, which will slow China's trade surplus.
China is targeting a 10-percent annual growth in foreign trade this year, sharply down from last year's growth of 22.5 percent.
While expecting a slower appreciation in the long term, analysts said the yuan will move more flexibly in both directions after the central bank widened its daily trading band against the U.S. dollar to 1 percent from the previous 0.5 percent last month.
The yuan traded at 6.3099 at its weakest level on spot markets on Wednesday, 0.68 percent lower than the central parity rate.
"The yuan's movement will be more obvious this year," in Zhao's view.
In the meantime, Zhang Yansheng, an expert with the National Development and Reform Commission, warned that international pressure remains for a more valuable yuan.
Politicians are likely to use the currency topic to win voters in election year in the United States, while the global loose monetary policy may bring more currency arbitrage activities, according to Zhang.
