Depreciation in the Chinese renminbi is likely to create external headwinds for other major Asian currencies, raising export competitiveness for the Chinese economy.

The RMB has continued its weakness on a trade-weighted basis. Moreover, some near-term weakness is also likely to be factored into the Chinese economy as long as there are no spillover effects into wider financial markets and capital outflow pressures are manageable, ANZ reported.

Depreciation in the Chinese currency is likely to help bolster exports in the country, albeit at the cost of other Asian currencies. However, in an environment of weak external demand, China’s improving competitiveness is likely to be hurt, putting pressure on central banks in the region to ease further.

Meanwhile, greater transparency and predictability in the fixing of the Chinese yuan (CNY) has helped markets adjust in a better way, to the two-way volatility in CNY fixings.

"Given the depreciation in the REER to date, a recovery in Chinese export volumes over the second half of this year can be expected," ANZ commented.

Further, Korea and Taiwan pose the greatest risk since these two countries have the highest exposure to China in terms of their export dependence and trade similarity. Therefore, from a relative competitiveness point of view, KRW and TWD are the most vulnerable to the RMB depreciation.

Despite recent lows touched by the RMB Index, USD/CNY is likely to follow developments in the United States Federal Reserve meeting on June 14-15 and the risks of Brexit looming high. This, in turn, implies that the RMB Index may increase as the yuan stays more resilient than other currencies under a stronger USD environment, ANZ reported.

"A risk off tone in markets in the event the "leave" camp wins will likely see the yuan weaken against the USD, but we suspect the PBoC may intervene to stem the extent of the decline," ANZ quoted in its report Tuesday.