China's CPI rose 1.5% y/y in November, up from 1.3% last month, as food prices picked up in the month.
PPI deflation persists, at -5.9% yoy in November, unchanged from last month.
CPI barely grew on a m/m basis, while PPI fell by 0.5%, reflecting a soft momentum.
In general, China's inflation profile remains soft, which paves way for further monetary easing.
We see PBoC will cut interest rate by 25bps in Q1 2016, and the multi-cut in the reserve requirement ratio can be projected next year as well.
Meanwhile, the fiscal policy would be more proactive to counter the headwinds in the economy.
China will likely provide subsidy to refugee farmers those buy properties in small cities, indicating that the fiscal spending is likely to accelerate rapidly in the coming year.
This move is in order to divest the unsold housing inventories in lower-tier cities.
Given such loose policy mix, there is no solid ground to maintain a strong currency as well.
Hedging Arrangements:
We still see further weakness in CNY/CNH exchange rate in the foreseeable future.
Hence, it is recommended to buy either 3M USD/CNY forwards of march expiries.
This style of derivative instruments is quite suitable for Small scale international traders as forward contracts does not cost of hedging upfront but provides hedger with a predetermined rate of exchange for certainty.
One can even forgo if prevailing spot FX markets are conducive than forwards rates.
