"On a rare positive note for a currency vs the USD, our Asia strategists have upgraded their CNY and CNH forecasts vs USD." - Credit Suisse.

According to last week’s October CPI report, which was weaker than expected inflationary pressures are not picking up and new economic data suggests the bottom has not been reached.

Although retail sales came in above expectations and consumption was strong, for three consecutive months, industrial production continued to decline.

"In China, the economy is still in troubled waters as the effects of the Peoples Bank of China’s (PBoC) massive stimulus is taking time to translate into the real economy. We therefore expect further cuts in the RRR and the 1-year lending rate." note Swissquote Bank.

China May Use Traditional Measures to Help Ailing Economy but Further Devaluation Should Be Ruled Out

China’s economic strategy to curb its dependence on western demand needs a very strong domestic demand to make up for that loss.

Although currency devaluation seems to be a preferred tool of the Chinese – presently, USD/CNY is trading in the high region of 6.3700; analysts believe the PBoC may use more traditional measures to further support China’s economy.

From Credit Suisse:

"On a rare positive note for a currency vs the USD, our Asia strategists have upgraded their CNY and CNH forecasts vs USD.

"They now look for USDCNY to top out below 6.60 over the next 12 months, below their previous 6.80 target. Their working assumption is that China has more than enough in reserve to guide the currency to a desirable level from a policy perspective even if capital outflows continue.

"A positive basic balance obviously helps too, as does the fact that Chinese exports remain competitive globally, reducing the attraction of weakening the CNY for policy purposes. Our Asia strategists assume that Chinese policymakers are looking for CNY NEER appreciation of around 2% annually. While down from above 5% seen in recent years, it still would represent a rare case of a major economy with a policy targeting currency strength rather than weakness.

"We recognize that China's FX policy regime remains highly opaque and that a shift to a faster pace of CNY depreciation cannot be ruled out.

"However, we think this unlikely for several reasons: Recent weakness in China's exports don't justify devaluation, in our view. We believe that China's government understands that export weakness this year is due mainly to weak trading partner growth, not CNY currency competitiveness problems."