If the trade war between the US and China continues to escalate, analysts expect China to let the yuan weaken further after letting it slide beyond the key 7 level against the US dollar. The Chinese yuan had lost around 3.8% of its value against the US dollar in August as trade tensions flared up once again, marking its steepest monthly decline in 25 years.

At the time of writing, USD/CNH is trading somewhat bullish at around 7.132 amid ongoing uncertainties surrounding the trade war. The PBOC had also stepped in earlier this month to stem the weakness in the Yuan by adjusting its official midpoint rate.

This hints at the possibility of the PBOC having intervened to weaken the yuan in the first place when the US had hiked tariffs on Chinese imports once again in August. Analysts expect the Chinese yuan to depreciate further to 7.2-7.3 against the dollar in case the trade war prolongs and escalates further.