The yuan is expected to remain relatively steady amid tightened liquidity conditions in the months ahead. However, it will likely face some headwinds in the second half of the year as China’s economic growth may slow somewhat and market talks about the Federal Reserve shrinking its balance sheet or the Bank of Japan (BoJ)/European Central Bank (ECB) tapering their stimulus plans could resurface.

China has stepped up efforts to deleverage financial institutions, which will weigh on the nation’s economic outlook in our view. In the meantime, China will pay close attention to fending off financial risks. China's top decision-making body, the Politburo, said last Tuesday that the nation will stick to the basic tone of “seeking progress while maintaining stability” this year and pledged to firmly safeguard the bottom line in preventing systemic financial risks.

"We think the PBoC’s USD 5.50bn of short forwards/futures position due to mature in May-June will have a very limited impact on the market. Moreover, China’s central bank didn’t roll over USD 21.707bn of its short positions in forwards and futures in foreign currencies that expired in March according to our analysis," Scotiabank commented in its latest research report.