This is in sharp contrast with other emerging markets and key Asian currencies, most of which have depreciated significantly.

As a result, China's trade-weighted exchange rate against a basket of its major trading partners' currencies has appreciated by almost 20 percent in real terms since 2010 and by more than 10 percent in 2013, she said.

The impact of yuan appreciation in 2013 is set to be felt in 2014, limiting the strength of China's export recovery this year. As such, the era of steady yuan appreciation may be drawing to a close, Wang said.

"The shift away from the previous steady pace of appreciation could unwind 'hot money' inflows," she said.

This will not necessarily lead to a credit tightening, but it does pose challenges for liquidity management by the People's Bank of China (PBoC, central bank), she added.

Wang Jun, senior foreign exchange strategist with HSBC, said the PBoC has been fixing the exchange rate between the U.S. dollar and the yuan higher after the Chinese New Year holiday.

"This suggests that the central bank wants to take advantage of the relative calmness in the external market to reduce RMB appreciation expectations," Wang Jun said in a research note.

Unsatisfactory macro economic data in January and February may have also contributed to the depreciation of the yuan.

The resumption of the usual softer seasonality in China's trade balance in February and March may have reduced spot U.S. dollar supply from exporters in the Chinese mainland, Wang said.

The most recent catalyst is related to the HSBC China flash manufacturing PMI released on Feb. 20, which hit a seven-month low.

Wang Jun maintained that the central bank could carefully calculate the USD-RMB fix after the market's aggressive appreciation expectations have eased.

In the past, the USD-RMB fix has tended to move higher going into or during the annual meeting of the National People's Congress in early March, but most of the time would fall after that meeting, Wang Jun added.