The Chinese yuan rose to a new high against the US dollar on Friday morning in Asia, increasing prospects for a rate cut by the central bank to curb excessive foreign fund inflows.
The yuan touched 6.1288 against the US dollar, its highest level since the red dragon started its exchange rate reform program in 2005 and was 0.1 percent higher-than its previous close of 6.1351.
Higher exchange rate usually attracts foreign investors to pump money excessively in order to gain the highest return, which would affect balance of payments. However, a rate cut could trigger out-flowing these funds and thereby helping the central bank to stabilize the exchange rate.
The People's Bank of China has set today's central parity rate for the dollar-yuan pair at 6.1867, compared to yesterday's daily reference rate of 6.1947.
The Chinese central bank sets the central parity rate every morning and allows the currency to fluctuate up to 1 percent from the level.
Yuan pegging against a basket of currencies began by the Chinese government in 2005 in order to ease some controls on the local currency.
Latest data on weaker-than-expected purchasing managers' index indicated that the appreciation of the yuan hurts China's export-oriented economy.
The purchasing managers' index, an indicator of activity in the manufacturing sector, shrank for the first time in seven months in May, reflecting slower domestic demand and ongoing external headwinds.
Preliminary results of a survey by Markit Economics showed Thursday that the headline purchasing managers' index, an indicator of the health of the factory sector, fell to 49.6 from 50.4 in April.
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