The Chinese yuan softened again on Thursday, giving back of all of its gains made this year, and could be headed for more weakness by year-end.

The currency's move lower came after it sank earlier this week amid fears about the U.S.-China trade dispute. Looking ahead, investors remain nervous, Nizam Idris, head of strategy, fixed income and currencies at Macquarie, told CNBC, citing the difference between traders' prices and the People's Bank of China official price level.

He said he was watching the spread as an indicator of market sentiment rather than where the central bank was deciding to fix the yuan mid-point.

"The spread between the spot yuan and the fixing has widened sharply. So what it means to me is that the PBOC is fixing dollar/yuan low, just to instill some sense of stability and strength. Meanwhile, I think locals and investors are pulling their money out of China to the extent that dollar/yuan spot is rising," the strategist told CNBC's "Squawk Box."

The spread as of Tuesday was at its widest since August 2015, he said, adding in a note that "[f]urther widening of the spot-fixing spread could sour sentiment, regardless of a lower than expected dollar/yuan fixing."

The on-shore yuan traded at 6.5001 to the dollar at 3:18 p.m. HK/SIN Thursday, after slipping as low as 6.5074 earlier in the day. In the offshore market, where the currency is less tightly controlled, the yuan traded at 6.5074 to the dollar.

Ahead of the market open, the PBOC had set the yuan mid-point at 6.4706 to the dollar. The central bank allows the yuan spot rate to rise or fall as much as 2 percent against the dollar, relative to its official fixing.