Beijing could have another window of opportunity over the next few days to make its long-awaited move on the yuan, in the wake of strong Chinese data and ahead of a Sino-U.S. summit.
However, leading economists in China were divided about whether any move was indeed imminent and past predictions of windows have come to naught, as Beijing has frozen the yuan at about 6.83 to the dollar since mid-2008.
But investors think something is cooking, pushing the yuan to a one-week high in offshore forwards to imply expectations of 2.7 percent appreciation over the next 12 months.
One-month and three-month forwards also showed the yuan at one-week highs.
The view that China might be on the cusp of unshackling its currency is driven, counter-intuitively, by relative silence from its foreign critics of late.
Beijing fears that any move taken during a bout of international pressure could be seen as a sign of weakness.
In the words of Citigroup economists Shen Minggao and Ken Peng, the current lull in rhetoric presents Beijing with a unique opportunity to declare a shift in its exchange rate regime.
With the world's attention focused on Europe's debt woes, the yuan has dropped down the agenda of global economic problems to worry about.
For China, which has insisted that foreign pressure is not conducive to yuan reform, this means it could plausibly argue that a decision to resume appreciation was decided entirely by itself and not at the behest of others.
But pressure could be heaped on again if nothing is done by the U.S.-China Strategic and Economic Dialogue on May 24-25, hence the speculation about an announcement in the coming days.
Jim O'Neil, Goldman Sachs chief global economist, reckons that Beijing has arrived at a tacit deal with U.S. Treasury Secretary Tim Geithner and President Barack Obama, paving the way to a loosening of yuan controls before the end of the month.
There appear to have been a few promises made to Geithner and Obama. So I would be really surprised if some sort of move didn't happen before May was over, he told Reuters Insider.
DATA AND DOUBTS
It does not hurt that strong economic data released this week buttress the case for appreciation, making it easier for the Chinese government to sell any move to domestic opponents.
Inflation climbed to an 18-month high in April and the export recovery kicked up a gear.
Conditions are ripe. The economy has fully recovered, HSBC economist Qu Hongbin said. I won't be surprised if they move over the weekend.
With falling bond yields pointing to an economic slowdown in China in the second half, some worry that the domestic numbers could become more of a hindrance toward yuan appreciation as the year progresses.
But for all the economists who detect a window of opportunity, an equal and opposing force see things differently.
Ha Jiming, a leading Chinese economist, said this week that the Greek debt crisis had pushed back any shift on the yuan, adding that the currency's rise on a trade-weighted basis in recent months had also limited its scope for gains.
I don't think that the RMB will appreciate in the immediate future, the chief economist for China International Capital Corp told Reuters Insider.
UBS economist Tao Wang said China would let the yuan rise in the next one or two months but keep a short leash on it, allowing 3-4 percent appreciation against the dollar over the rest of the year. Previously, she had forecast a 6 percent rise in 2010.
Qing Wang, an economist with Morgan Stanley, said a subtle change in central bank wording -- that the yuan's management should refer to a basket of currencies -- signaled that change was just around the corner.
But as for when that would happen, Qing cast his gaze beyond next week.
We maintain our call that the renminbi will exit from its de facto peg against the dollar in the summer, he wrote in a note to clients.
(Additional reporting by Karen Yeung in Shanghai, Aileen Wang in Beijing and Kevin Yao in Singapore)
(Editing by Raju Gopalakrishnan)