China yuan
Yuan has been heading south since the government revamped the foreign exchange mechanism last year. Reuters

The Chinese yuan continued to slide on Monday despite the PBoC caution against overreacting in the foreign exchange market.

USD/CNY rose to a two-week high of 6.5495 from previous close of 6.5374 in the spot market.

The Chinese share markets also tumbled on Monday, which some analysts attributed to funds adjustment to property market that has seen a recovery in the world's second largest economy.

The Shanghai Composite index was down more than 4% in afternoon trading.

For China, the currency yuan has been heading south since the government revamped the foreign exchange mechanism last year, and concerns about capital outflows have been on the rise.

Yi Gang, the vice governor of China's central bank, said on Sunday that said he is confident in the currency's fundamentals, which will drive the exchange rate in the long term rather than short-term expectations.

Yi recognized some volatility on the yuan exchange rate, but said markets should not overreact, as the yuan's fluctuation range is still smaller than many other currencies.

Yi said the yuan exchange rate was also affected by some short-term speculations.

With regard to capital outflow woes, Yi said the recent drop in China's foreign exchange reserves was mainly due to a rise of FX assets in residential accounts and a reduction of FX liabilities, which are not likely to last for long.