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China makes right noises on yuan, but doubts remain

China's central bank is making all the right noises when it comes to moving towards opening up its domestic currency, but analysts warn that any concrete action is still a long way off.

On Tuesday after China's central bank reiterated its plan to gradually stop intervening in its foreign exchange market, the dollar index, which trades against other major currencies, slipped 0.3 percent.

"One thing that we have to remember, we had a huge raft of reforms announced as part of the third plenum, but none of it is really happening today, tomorrow or indeed next week," said Robert Rennie, global head of FX strategy at Westpac Bank.

(Read more: China's reforms: 5 key ones you should know)

The comments were made by Zhou Xiaochuan, head of the People's Bank of China, in a guidebook explaining reforms outlined last week following a Communist Party meeting, but Rennie told CNBC they did not necessarily translate into hopes for immediate action.

Teh Eng Koon | AFP | Getty Images

"Yes we get a clear sense that the PBOC is going to remove or reduce the very frequent intervention into this market, but they don't tell us when it's going to happen," he added.

The PBOC comments are the latest in a series of rhetoric from Chinese central bankers indicating that plans to fully float the yuan are being sped up. In May, a letter from a senior researcher at the PBOC said the yuan would be fully floated by 2015-2016.

(Read more: Default fears put dollar's reserve status at risk)

Currently, the yuan is only allowed to trade within a range of around 1 percent either side of a daily-fixed mid-point.

And in another encouraging move, a day after Zhou Xiaochuan's comments, the PBOC fixed the yuan's mid-point versus the dollar at 6.1305, its highest level since the landmark revaluation in 2005, an indication that the central bank is comfortable with its strength. The yuan has strengthened 2.21 percent against the dollar year to date.

Simon Derrick, chief currency strategist at BNY Mellon, told CNBC Asia's Squawk Box on Tuesday he was convinced the opening up of the yuan remained a "big story," but said it was careful not to get carried away.

"At the moment it is no more than words but we did get intimations out at least back in May...so I do think we are getting a sense of the timeline as to when this is going to happen," he said.

"[But] what we going for here is a managed flow of some kind. I think we'll have a reasonably wide trading band and I think it's going to look a little like the ruble rather than anything else... It won't be a free floating currency in the way we recognize it," said Derrick, referring to Russia's domestic currency, which is freely traded to a certain extent but is still subject to intervention.

(Read more: Here's What China Is Secretly Planning for the Yuan)

Westpac's Rennie told CNBC he remained bullish on the yuan, boosted by the country's extensive reform plans and more positive economic data in recent months.

"Long China and short Taiwan are the trades that make sense, [but] we wouldn't be looking for a rapid move lower in dollar-yuan right now though," he added.

China has announced a number of currency swap deals this year, one with the euro zone in October and the U.K. in June, also helping to boost sentiment.

Meanwhile in September, the yuan was ranked one of the world's top ten most frequently traded currencies for the first time ever, in a Bank of International Settlements survey; it ranked ninth.

Other factors putting downward pressure on the dollar also contributed to yuan strength recently. The Federal Reserve's vice-chair Janet Yellen last week confirmed her intentions to keep monetary policy easy for some time, which has led to some dollar selling.

— By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie