China’s manufacturing PMI disappoints streets

• China's manufacturing PMI: The flash HSBC Purchasing Managers' Index (PMI) fell to 49.1 in May month, below the 50 point level that separates growth in activity from a contraction on a monthly basis. China May flash HSBC factory PMI shrinks for 3^rd consecutive month.
  
  
• Conference Board leading index to be released today, previously printed at 0.2%.
  
  
• China's economic growth slowed to a six year low of 7% in Q1.

Let's ponder upon cross hedging of CNY

Step 1: Selecting the positively correlated currency with CNY

Usually the currency underlying the futures contract would be the same as the currency whose price is being hedged. But here JPY can be utilized as this currency cross has been frequently used in OTC market.

Step 2: Hedge ratio

Normal hedge ratio would be 1. But in case of cross hedging, according the hedgers' requirement and their exposure the proportion should be chosen so as to minimize the variance of the hedged position.

Step 3: Analyze the cross currency with which it has to be hedged

Suppose we are now forecasting JPY to appreciate in its intrinsic value against USD, and then an exporter from China can arrange near month, mid month or far month positions in JPY against USD as per his requirements. In turn once his prediction comes into play, he can convert those Yen into his local currency.