THE current bout of currency volatility can reduce trade flows and foreign direct investment, said Claudio Piron, Bank of America Merrill Lynch co-head of Asia FX and rates strategy.
He was giving a media briefing on Wednesday morning on the recent global phenomenon of "currency wars" - central banks attempting to stimulate growth by deliberately weakening their countries' currencies. This is done through lower interest rates or unleashing liquidity on the private sector by purchasing financial assets. A weaker exchange rate helps domestic exporters.
Swings in foreign exchange rates have been exacerbated as a result of the uncertainty about whether a central bank will lower interest rates.
"This makes investment decisions a lot harder ... increasingly there's some risk to China engaging in some limited depreciation," he said.
If China depreciates the yuan, countries that export the most to it compared to their economy, like Korea, Australia and New Zealand, will be hit the hardest, he said.