It looks like the 6.50 level in USD/CNY is where the PBOC decides "enough is enough"
Last September, USD/CNY touched below 6.50 and the PBOC removed the reserve requirements for FX forwards trading. That allowed financial institutions to stop setting aside cash when purchasing USD for clients through FX forwards - which meant an easier process for traders/investors to purchase USD against the CNY.
That resulted in a sharp decline in the Chinese yuan, but only temporarily. As the dollar weakened over the last few weeks, the PBOC had very little choice but to fix the USD/CNY lower and in recent days it was below 6.50.
Then, today news sources are saying that they have suspended the "counter-cyclical factor" from its daily CNY fixing mechanism - and that resulted in the CNY being marked sharply lower thereafter.
Bloomberg Economics argues that the move cuts away one source of support for the CNY - as the "counter-cyclical factor" was introduced in the hope that robust growth would support the yuan and anchor market expectations. And that has been the case.
Robust global growth and economic fundamentals have allowed the CNY to strengthen over the last year against the USD. But the removal of the "counter-cyclical factor" suggests that the fixing rate should be weaker, since those robust fundamentals are not to be taken into account.
That led to the USD/CNY falling after the news broke out earlier in the day.
Asian central banks have been active in today's trading - as we also had the BOJ announcing "tapering" of its bond purchases.
