[BEIJING] China threw a lot at the yuan in June, tussling with traders to drag the currency higher.

Starting the month at a 2017 high, the yuan lost 0.6 per cent to the US dollar over the next two weeks as bearish bets returned on concern China's economic growth may have peaked.

That seemed to trigger a reaction from the People's Bank of China, with the authorities speculated to have intervened on at least three occasions over the past two weeks, driving the yuan to its strongest level since November.

But those gains - which continued Friday amid more suspected yuan buying - have done little to shake the view among strategists that the currency is destined for further weakness.

The roller-coaster month has laid bare the tensions at the heart of China's currency trade. While Beijing wants a buoyant, stable yuan to lure foreign investment and to anchor sentiment as regulators attempt to deleverage, the market sees forces for declines - with demand for dollars persisting despite capital controls and monetary tightening.

Though the US dollar's retreat has helped the authorities end on top in June, delivering a stronger yuan in time for Xi Jinping's first visit as president to Hong Kong, the current trajectory may be fleeting.

"Ultimately, the PBOC won't win this game and the yuan will weaken, as investors will always want to buy the dollar to diversify their assets - this trend has never changed," said Zhou Hao, a senior economist in Singapore at Commerzbank AG. He sees the currency slipping another 4.9 per cent by year-end.

"The PBOC has been playing a more proactive role in defending the currency lately, as it hopes to leave a deeper impression with more dramatic swings in the yuan."

The PBOC typically doesn't comment on its activities in the market, and didn't immediately respond to questions faxed Thursday.

This is how the month of June stacked up for China's currency: Onshore, the yuan has strengthened 0.8 per cent to 6.7653 per US dollar; the offshore rate, meanwhile, is down 0.5 per cent. Despite those onshore gains, the median strategist estimate is for the yuan to end 2017 at 6.97, barely changed from the 7-per-dollar projection on June 1.

Evidence that pressure is to the downside: the onshore yuan closed weaker than the reference rate, known as the fixing, 17 days in a row in June. The discount became a premium following suspected intervention on Tuesday.

Going forward, the central bank is likely to remain a fixture in the currency market, according to strategists: "We would expect the PBOC to remain somewhat active, intervening in the currency market at times," said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities LLC in New York.

"This will likely occur during periods of renminbi underperformance," he said, referring to the yuan's official name.

"If the renminbi does not strengthen noticeably during periods of dollar weakness, we would expect further intervention on occasion from the central bank to encourage that renminbi strength."

Intervention "can temporarily relieve depreciation pressure" in the yuan, but it also provides better entry points for locals to buy US dollars, Jason Daw, head of emerging-market foreign-exchange strategy at Societe Generale SA in Singapore, wrote in a note.

He says "another squeeze" could be forthcoming as there is a desire to protect against downside risks to assets before the Communist Party Congress in the fall.

For Allan von Mehren, a strategist at Danske Bank A/S., the PBOC's yuan policy has become more unpredictable.

"Maybe they want to keep the yuan in a tight grip around the 6.8 to 6.9 level," he said, adding China may also be acting to lure inflows and to "show investors that the currency will not weaken."

BLOOMBERG