Beijing has allowed the yuan to hit record highs against the US dollar repeatedly over the past few days, prompting speculation that more liberalisation of the country's foreign exchange market - including a widening of the currency's trading band - could be around the corner.
The onshore spot rate for the yuan hit a record high of 6.0972 per US dollar in intraday trading yesterday, breaking a record set just a day earlier.
The fix rate, set by the People's Bank of China each trading day, was just below the record high.
"The strong stance on the yuan sends a strong signal to the market that exports are no longer the top priority on the government's agenda," said Wang Ju, a senior Asia foreign exchange strategist at HSBC.
"Their key focus is to change the structure of the economic growth model, which requires them to tolerate more appreciation of the yuan."
The jump underscores market expectations of a series of reforms in the foreign exchange regime that could accelerate the appreciation of the yuan ahead of and after a key Communist Party meeting next month.
Besides a doubling of the trading band, traders were also expecting measures to encourage more overseas investments, Wang said.
Between September 6 and October 14, the central bank lowered the yuan fix rate by 322 basis points, and the gap between the onshore spot and fix has now narrowed to 291 basis points, much lower than levels seen for most of the year, according to an HSBC note released yesterday.
A narrower gap is normally a precondition for the central bank to further widen the daily trading band.
In anticipation of more reforms, the 12-month non-deliverable forwards, which reflect offshore investors' expectations of the yuan's room for appreciation, shot up to a record high of 6.1485 per US dollar yesterday.
"Offshore investors are relieved by the foreign exchange reserve data which confirmed there have been continued inflows into the onshore market," said Frances Cheung, a senior strategist at Credit Agricole CIB.
"The strong [yuan] fixing also adds to the feeling that policymakers are not reluctant to let the [yuan] strengthen, especially amid ongoing efforts to internationalise the yuan."
Beijing added US$163 billion worth of foreign reserves in the past quarter, the biggest quarterly gain in more than two years.
A delegation from the Hong Kong Association of Banks is in Shanghai for talks about moves to boost offshore yuan usage, including raising the amount of yuan Hong Kong residents can withdraw each day.