Hong Kong looks poised to witness another wave of demonstrations over recent Chinese security laws as the United States prepares to unleash a series of actions on Chinese tech companies.
The Chinese yuan is absorbing a huge amount of beating from such developments so far, with the US dollar/CNY currency pair breaching above 7.15 to levels last recorded in September last year when trade frictions with the US escalated.
Markets are now witnessing a growing possibility that China's central bank will let its currency to depreciate in response to possible US sanctions.
The complacency of world finance markets to mounting geopolitical instability puts a huge doubt over the aggressiveness of the recent risk surge, which leaves so-called high-beta currencies vulnerable to the material risk of a correction and suggests the US greenback may have bottomed out.
China's offshore currency has tested the most sluggish level on record on expectations the government would be willing to allow a weaker yuan in response to new punitive measures by Washington.
The CNY's offshore rate was down by as much as 0.7 percent per USD late Wednesday, its lowest since 2019 when the currency hit an all-time low.
The foreign exchange rate has emerged as a focus of the China-US trade showdown, with US President Donald Trump consistently alleging that China manipulated its currency.
Chinese currency regulators have disclosed that they are in favor of a stable yuan, after a surprise devaluation in 2015 that distorted world asset prices and weakened investor confidence in China's financial sector.
According to Barings' director for Greater China Investments, Khiem Do, there's great value for China's yuan at their current levels. He stated, as per CNBC's "Street Signs" Wednesday, that for the next four quarters, "we believe the yuan will trade between 6.8 versus the US dollar to 7.2."
The global finance landscape had been caught in a crossfire between pessimists and optimists with regards the global outlook, and with this some market capitalists are betting on a restart of market activity after the ill effects of the pandemic that reduced the global economy to near shambles, while some sectors are doubtful that the possibility of US sanctions against China would simply deepen risk sentiment.
Meanwhile, a weaker Chinese currency makes China's products more affordable overseas, giving the yuan a competitive edge that could help strengthen demand abroad.
Although local manufacturing activity in the mainland is beginning to rebound from a widespread lockout earlier this year, the world's biggest trading hub continues to take advantage on exports for economic growth.
