Investors are dumping the Chinese yuan and Hong Kong dollar as investors sell off China stocks this week.
It will likely be a "rather bumpy and volatile path" upward for the onshore and offshore yuan against the greenback, he said, adding that the offshore yuan could have a greater degree of weakness and volatility.
A more "durable" tumble in the offshore yuan is a risk if "markets perceive that Beijing's action could create long-lasting impediments to the ability of Chinese firms to raise capital offshore," Varathan said. "But for now, the more imminent motivation for sell-off will be 'risk off' from adverse regulatory shocks that have been rippling through tech, property, spilling over to private education and with healthcare potentially in the cross-hairs," he concluded.
China's recent actions suggest that China is increasingly "turning inward," said Claudio Piron, co-head of Asia rates and FX strategy. "If it is more insular then that could be more to the detriment of the renminbi , particularly if it comes with weaker PMI numbers as well," he told CNBC, referring to data from the Purchasing Managers' Index which measures the performance of the manufacturing sector.
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