Weakness in Chinese data over the weekend (IP, retail sales, and fixed asset investment all disappointed) could fan investor concerns about the authorities’ ability to sustainably revive economic growth.

Although, Chinese retail sales grew by 10.1% YoY in April of 2016, slowing from a 10.5% increase in March and less than market estimates of a 10.5% rise. It is the weakest reading since January and the lowest figure since May 2015, driven by a decline in sales of oil and oil products (-3.8%).

The downward surprises in IP and retail sales were only a one-standard deviation event over the past two years, but could be sufficient to reinforce the recent upward trend in USDCNH.

The combination of renewed worries about Chinese growth coupled with RMB depreciation could further disturb the EM FX market (since April 20 EM FX has retraced one third of the YTD rally).

Despite the 1% rise in USDCNH over the past few weeks, forward points have not meaningfully reacted and remain depressed overall, likely reflecting the lack of conviction in the RMB depreciation trade and the unwillingness of investors to pay away negative carry.

After a massive capitulation phase earlier in the year, this behaviour is not surprising, but if USDCNH keeps creeping higher, forward points should eventually follow suit.

While we remain bearish the RMB (retaining our peak 6.80 forecast ever since August 12), we have always believed that long USDCNH in forwards was too expensive.

However, the historical cheapness of being short CNH in front-dated forwards does warrant some consideration, at a minimum to have some skin in the game in case a meaningful depreciation phase unfolds.