Senior Commonwealth Bank currency strategist based in London, Elias Haddad, says trade tensions have ratcheted up with the devaluation of China's currency. However, he was not as surprised by China's move to devalue, as he was by Trump's additional tariffs announced late last week.

"I didn't expect any breakthrough in trade negotiations, but I didn't expect a worsening...It is a dangerous game the Chinese are playing. Not only does it raise the likelihood of a currency war, their surplus is weakening and there is a fair fear it will lead to an increase in capital outflow."

"It appears as though the policy makers in China have engineered this weaker currency," Mr Haddad says.

"Their motive here to let their currency weaken is to cushion the potential damage of higher US tariffs. It is tit-for-tat....not only do we have the trade war, now we potentially have a currency war."