In the past couple of days USD/CNH declined drastically as onshore China market were closed for Chinese New Year. Recent weakness in the USD is seen weighing on the pair. The markets expected the Chinese currency to extend losses; however, they were taken by surprise as the CNH is trading at its strongest levels since December.

As the at-the-money volatility continues to be high across the curve, the option market is expecting intervention from the PBoC. Allowing flexibility to its exchange rate at this point might not pressurize the Chinese currency as weakness in the dollar have provided ample room for the PBoC to ease its exchange rate policy.

Currently, USD/CNH trades at 6.5355 levels, hovering towards session's low of 6.5260.