China's yuan forward, further uptick seen limited

China's yuan strengthened to its strongest level in 14 months against the U.S. dollar on Thursday, however, with further easing policies expected the upside is seen as limited, analysts said.

The central parity rate of the yuan strengthened by 43 basis points to 6.1113 against the greenback, the strongest level since Feb. 20, 2014, according to the China Foreign Exchange Trading System.

The uptick can be attributed to a weaker U.S. dollar, said Xie Yaxuan, an analyst with China Merchants Securities.

On Wednesday, the greenback fell against other currencies after worse than expected U.S. job data, adding to concerns about growth of the world's largest economy.

Easing policies taken by the European Union, which pushed European investors toward emerging markets, also supported the strengthening of the yuan, said Zong Liang, deputy head of the Bank of China international finance institute.

The yuan's central parity rate is based on a weighted average of prices offered by market makers before the opening of the interbank market each trading day. The spot rate is allowed to trade with a range of 2 percent above or below the central parity rate.

On the spot market, the yuan weakened slightly, however, trading at 6.2069 per dollar in Shanghai.

International Monetary Fund (IMF) executive director for China Jin Zhongxia told Xinhua that the yuan's exchange rate was "not far from equilibrium."

Analysts said sharp depreciation of the yuan will be unlikely but further uptick will also be limited due to downward pressure on the currency, resulting from weak economic prospects and capital outflow concerns.

The Chinese economy expanded 7 percent year on year in the first quarter of 2015, the lowest quarterly growth rate since 2009. An HSBC survey indicated continued weakness and the State Information Center, a government think tank, expects growth to slow further to 6.8 percent in the second quarter.

Chinese leaders committed to keep the value of the yuan broadly stable, despite the economic challenges.

This comes amid efforts to promote the internationalization of the currency with the aim of being included in the IMF's Special Drawing Rights (SDR) basket of reserve currencies, an HSBC report said.

In an interview with the Financial Times in April, Premier Li Keqiang said China cannot rely on a declining yuan to help exports and it does not want further devaluation.

In the last five-yearly review in 2010, the IMF decided not to include the yuan as it was not freely usable. The next meeting will be held later this year.

Zhou Xiaochuan, China's central bank governor, pledged to accelerate reform and opening up of the nation's capital market in 2015, with the aim to make the yuan convertible on the capital account. Positive steps that have been taken include plans to start an insurance system for banks' deposits and interest rate liberalization. Enditem