Yuan deposits in Hong Kong, which have fallen for five months in a row, are likely to continue to decline in the next three to six months, analysts say.
They expect the yuan to remain flat against the US dollar this year.
'There is only one reason for the decline in yuan deposits in Hong Kong; that is, people have changed their expectations as to the future direction of the yuan,' said Lu Ting, head of greater China economics at Bank of America Merrill Lynch.
Lu said the expectation of a slowdown in the yuan's strengthening against other currencies was why retail yuan deposits in Hong Kong had fallen from December to April.
Yuan deposits in Hong Kong stood at 552.4 billion yuan (HK$675.78 billion) at of the end of April after dropping for a fifth straight month, according to a Hong Kong Monetary Authority release last week. Such deposits dropped 0.34 per cent from March, a drop of 6.13 per cent from the 588.5 billion yuan in deposits in December, and 12 per cent lower than the peak of 627.3 billion yuan recorded on November 30.
'During the past few years, the yuan rose on average about 4 per cent a year, and it was almost 30 per cent up during the past seven years until September last year. That was why so many people exchanged other currencies into yuan,' Lu said.
'Many investors also rushed to buy the many yuan-denominated investment products, to bet on the currency gain.'
However, Lu said, this stopped in September last year, when weak economic data showed signs of slow growth on the mainland.
In March, Beijing forecast GDP growth at 7.5 per cent this year, down from 8 per cent in the previous year.
The euro-zone crisis has hurt exports from China and other Asian countries, which has negatively affected regional currencies.
India's rupee fell almost 15 per cent against the US dollar last year.
'A slowdown of economic growth and the depreciation of other currencies have led to a weak outlook for the yuan,' Lu said.
'Many expect it to be flat or even fall against the US dollar slightly this year.
'Yuan deposits in Hong Kong are likely to continue to fall in the next three to six months.'
But Lu said yuan deposits in the city would grow in the longer term as China would keep promoting the internationalisation of its currency.
The yuan is not yet fully convertible, but Beijing has, since 2009, gradually relaxed restrictions to allow selected companies to use it to settle trade and selected investors to buy yuan-denominated financial products.
Andrew Fung Hau-chung, executive director of Hang Seng Bank, also believes yuan deposits will remain flat in the coming months, as the outlook for the yuan exchange rate is also flat.
'However, banks are raising deposit rates as lending opportunities increase. Thus positive and negative factors are neutralising each other,' Fung said.