While the move in China's currency may appear large, the fixing at 6.8495 may represent some support from policy makers.
In a note Tuesday morning, analysts at Nomura had expected the fix would be at 6.8595, based on the levels of the trade-weighted basket, mainly on drops in the yen, euro, Malaysian ringgit and British pound.
But Patrick Bennett, a foreign-exchange strategist at CIBC, said the PBOC was likely aiming to keep the fix relatively stable, noting that while there was a depreciation trend overall, policymakers likely didn't want the level to lurch higher one day and then fall sharply the next.
"It was about where we thought it would be. It's in line broadly with the dollar being firmer," he said, adding that he expected the U.S. dollar to head even higher, with the greenback getting to as high as 6.90-6.95 yuan by the end of the year.
The mainland's currency has been a source of political tension with the U.S., with President-elect Trump vowing during his campaign to label the country a currency manipulator for the purposes of a competitive trade advantage and impose a 45 percent tariff on its exports to the U.S.
China does not meet the U.S. requirements for getting slapped with the manipulator label, which typically means the U.S. would engage in additional negotiations with the country.
The U.S. Treasury's rules and regulations require three criteria before the U.S. could impose "meaningful penalties" on countries that failed to adopt appropriate trade policies: a significant bilateral trade surplus with the U.S.; a material current account surplus larger than 3 percent of gross domestic product; and persistent interventions to keep its currency weak.
According to the Treasury's assessment report in October, China only met the first criteria.
Analysts have said that imposing the tariffs and manipulator label could cause further weakness in the yuan as Chinese policymakers would lose incentives to support the currency.
CIBC's Bennett noted an irony to Trump's positions on China's currency.
"At that point and probably even now, the extended weakness of the yuan will certainly raise the ire of the new administration. But whose role might it be to tell President-elect Trump that it is partly due to his policy ideas that the Chinese currency is weakening? As are other currencies against a stronger U.S. dollar," Bennett said separately in a note on Tuesday.
Others also noted issues with how yuan weakness may play out with the new U.S. administration.
"It may not be easy to separate out U.S. dollar strength, from 'manipulated' yuan weakness," Deutsche Bank said in a note dated Sunday.
"If China is labeled a currency manipulator on day one of the Trump presidency, dollar/yuan will remain a frontier for new skirmishes in the old 'currency war,'" the bank said. "It is plausible that the dollar/yuan exchange rate could get caught in a test of realpolitik muscle, where China still holds some powerful cards. This includes directing the yuan in a way that hurts U.S. risky assets and impacts Fed policy."
—Saheli Roy Choudhury contributed to this article.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1
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