[SHANGHAI] The yuan came off early highs on Friday amid robust corporate demand for US dollars and as traders awaited a speech by Federal Reserve Chair Janet Yellen later in the day for more clues on the timing of the next US interest rate hike.

If the yuan closes around the midday level, it will have softened a mild 0.2 per cent for the week. It has lost 1.2 per cent against the US dollar so far in May amid growing expectations that the Fed could raise rates as early as June.

"Corporations were rushing to buy US dollars this morning as they are afraid the yuan might weaken further," said a trader at a Chinese commercial bank in Shanghai.

A US rate rise will put the yuan under renewed depreciation pressure and possibly revive worries about capital outflows, but Chinese traders expect Beijing will keep a firm hand on the yuan's movements.

Prior to market opening, the People's Bank of China set the midpoint rate at 6.5490 per US dollar, 0.09 per cent firmer than the previous fix 6.5552 in response to US dollar's global retreat.

Spot yuan opened at 6.5530 per US dollar and hit a intraday high of 6.5504. It was changing hands at 6.5603 by midday, little changed from the previous close.

Still, pessimistic bets on the yuan have risen to the largest since early February, according to the survey of 20 fund managers, currency traders and analysts conducted by Reuters this week.

On Thursday, China's foreign exchange regulator issued new rules simplifying procedures for individuals exchanging foreign currencies but keeping net purchase quotas unchanged.

The People's Bank of China will keep policy slightly loose to support the economy, which still faces downward pressure, the China Business News said on Thursday, citing a report written by the central bank's monetary policy analysis team.

In offshore markets, the yuan was trading 0.06 per cent softer than the onshore spot at 6.5642 per US dollar.

Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7395, or 2.83 per cent weaker than the midpoint.

REUTERS