The yuan could weaken to 7.40 against the dollar as China-U.S. tensions linger, warns strategist

• The Chinese yuan could weaken to as low as 7.40 against the dollar as tensions between Beijing and Washington show little sign of abating soon, according to Bannockburn Global Forex's Marc Chandler.
• As of Thursday morning Singapore time, the onshore Chinese yuan traded at 7.1675 per dollar, while its offshore counterpart changed hands at 7.1855 against the greenback.
• The moves came as tensions between China and the U.S. continued to mount in recent days.

China's President Xi Jinping and US President Donald Trump during a meeting outside the Great Hall of the People in Beijing.

Artyom Ivanov | TASS | Getty Images

The Chinese yuan could weaken to as low as 7.40 against the U.S. dollar as tensions between Beijing and Washington show little signs of abating anytime soon.

That's according to Marc Chandler, chief market strategist and managing partner at Bannockburn Global Forex.

"If you were to tell me what we're gonna go ... toward 7.30, 7.40 on the (yuan against the dollar), I could see how that could happen because I don't see how these tensions can ease in the next several months," Chandler told CNBC's "Squawk Box" on Thursday.

As of Thursday morning Singapore time, the onshore Chinese yuan traded at 7.1675 per dollar, while its offshore counterpart changed hands at 7.1855 against the greenback. A day earlier, the offshore yuan touched its weakest level against the dollar since Sep. 3, when the dollar traded as high as 7.1963 against the offshore currency. 

The onshore yuan trades in the mainland and is tightly controlled by China, while the offshore yuan trades more freely outside the mainland, mostly in Hong Kong but also in Singapore, London and New York.

The weakening of the yuan comes as tensions between China and the U.S. ramped up in recent days over a number of issues — from Beijing's treatment of minority Uighur Muslims in the Xinjiang region to a proposed national security bill for Hong Kong that sparked a fresh wave of protests. The U.S. has also threatened sanctions on China.

At present, Chandler said, the People's Bank of China appears to be "tolerating" the weakness in the Chinese yuan which "typically happens as the tensions with the U.S. escalate."

"The Chinese do look like they're tolerating or resisting very moderately the downward pressure on the (yuan)," the strategist said. He warned this could have a "spillover" impact beyond just the Chinese currency and the Hong Kong dollar, but also for Beijing's competitors in East Asia or the broader emerging markets.

"I think this is the fear that people have … that China weakens and that is … the lead indicator of emerging markets as an asset class," Chandler said.