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Source: Time Weekly Author: Zhou Mengmei

US dollar deposits and US dollar financial products, which have been considered "hot commodities" in the past period of time, are being hit by exchange rate shocks.

Since July, onshore andOffshore RMBThe exchange rate against the US dollar rebounded sharply. On August 19, the offshore RMB exchange rate against the US dollar once regained the integer mark of 7.13. In the previous three days, the offshore RMB exchange rate rose by more than 600 basis points.

As the RMB exchange rate rises, the exchange rate risk of US dollar financial products is also exposed to investors. Some investors who bought US dollar deposits when the US dollar was high have suffered a floating loss of more than 5,000 yuan in less than a month.

"The biggest risk of US dollar deposits is exchange rate risk." Xue Hongyan, deputy director of Xingtu Financial Research Institute, told the Times Weekly reporter that the renminbi showed a depreciation trend against the US dollar some time ago. In addition to enjoying higher product returns, holders of US dollar financial products also gained significant exchange rate benefits. However, recently, as the expectation of the Fed's interest rate cut continues to heat up, the US market interest rate is likely to decline, and the US dollar has depreciated slightly against the renminbi. The possibility of Chinese domestic investors suffering exchange rate losses when purchasing US dollar deposits or US dollar financial products has increased.

Source: Tuchong Creative

US dollar financial management quietly becomes popular

In April this year, He Ming (pseudonym) bought a six-month US dollar deposit in a foreign bank. On top of the new customer benefits, he received an annual interest rate of 5.3%. He Ming said that after experiencing losses in the fund over the past two years, he was more willing to buy stable financial products. After tasting the sweetness, He Ming bought a one-year US dollar deposit with an annual interest rate of 5% in a bank in Beijing.

Since the beginning of this year, the listed interest rates of RMB deposits have been falling again and again, but some US dollar deposit products have attracted the attention of many investors with their high interest rates.

There are many investors like He Ming who choose to convert RMB into US dollars and then buy US dollar time deposits or low-risk US dollar financial products at banks. Posts such as "How to buy US dollar deposits", "Which bank has the highest yield on US dollar deposits?" and "Is the yield on US dollar financial products stable?" are popping up on social platforms.

The outstanding size of US dollar wealth management products also remained high.

According to the financial data platform Puyi Standard, as of July 18, the outstanding scale of US dollar wealth management products was 233.941 billion yuan, up 66.68% from the end of 2023. Banks and other institutions are also actively deploying US dollar deposit products. As of August 8, the number of outstanding US dollar wealth management products was 2,290, an increase of 1,558 from the end of last year, an increase of more than 2 times.

The reason behind the popularity of US dollar deposits and wealth management is that their yields have certain advantages over similar RMB wealth management products.

On July 25 this year, the six state-owned banks collectively lowered their deposit interest rates, with the two-year, three-year, and five-year fixed deposit interest rates falling to 1.45%, 1.75%, and 1.8%, respectively. This is the fifth time that state-owned banks have lowered their deposit interest rates since September 2022.

Small and medium-sized banks have also followed suit. According to data monitored by Rong360 Digital Technology Research Institute, in July this year, the average interest rate for five-year lump-sum deposits was 2.295%, falling below 2.3%, setting a new low again. The average interest rates for other maturities also fell compared to June.

Correspondingly, the US dollar deposit rate is at a high level.

According to the official microblog of a bank in Chongqing, the bank released promotional information on several US dollar deposit products on August 21. Among them, the interest rates of 3-month and 6-month US dollar deposits are as high as 5%, and the interest rate of 1-year US dollar deposits is 4.9%; on the same day, the product information released by a branch of Hengfeng Bank showed that the bank's 1-year US dollar deposit interest rate was also 4.9%.

Liu Xing (pseudonym), a customer manager of the above-mentioned foreign bank, told the Times Weekly reporter that if the customer opens a new account, the interest rate for purchasing a 6-month or 1-year US dollar fixed deposit in August is 5%, but the minimum deposit is 20,000 US dollars.

Amid exchange rate fluctuations, the yield on US dollar financial products has shrunk significantly

Although the interest rates on US dollar deposits and financial management products are attractive, exchange rate risks need to be considered.

Recently, many investors have stated that the actual yields of the US dollar products they purchased have shrunk significantly due to exchange rate fluctuations.

"The US dollar financial product with a holding period of about nine months and an expected annualized yield of 5% was hit back by the recent rise in the RMB exchange rate, and the final yield shrunk to 3.5%," said investor Lin Hui (pseudonym).

According to Lin Hui, she purchased a US dollar wealth management product under a bank's wealth management. On August 19, after redeeming the product, Lin Hui found that due to exchange rate fluctuations, the actual rate of return was far less than the expected annualized rate of return.

Lin Hui's situation is not an isolated case. Many investors have shared on social media that due to the appreciation of the RMB, the actual yield of the US dollar deposits or wealth management products purchased and matured in RMB has shrunk. "The actual yield of a recent US dollar wealth management product matured in US dollars was 5.07%, while the yield in RMB was only 3.39%." said one investor.

Some investors even suffered a loss of more than 5,000 yuan on their US dollar deposits.

A netizen said that on July 16 this year, he bought 49,000 US dollars (equivalent to RMB 357,018.9) at an exchange rate of 1:7.2861 between the US dollar and the RMB, and purchased a one-month lump-sum deposit in US dollars with an annual interest rate of 4.85%. As of August 12, the value of the deposit was RMB 351,540.7, and a floating loss of RMB 5,478.2 was recorded in less than a month.

When purchasing US dollar deposits, financial products, etc., interest rates and exchange rates need to be given special consideration.

China Everbright BankZhou Maohua, a researcher at the Financial Markets Department, told the Times Weekly reporter that, in general, ordinary investors who choose to deposit in US dollars need to face interest rate fluctuations and exchange rate risks. Considering that domestic investors will eventually have to convert their US dollar deposits into RMB exchange rates, this leads to uncertainty in the final returns of US dollar deposit products due to exchange rate fluctuations. At the same time, different investors also need to consider the impact of inflation on the actual returns of US dollar deposits.

Lin Xiao (pseudonym), a customer manager at a joint-stock bank, also told the Times Weekly reporter that buying US dollar deposits requires exchanging currency first, and the exchange rate fluctuates every day. If the RMB continues to appreciate, the yield of US dollar products will narrow.

"Based on the current fundamentals, prices and policy trends of China and the United States, investors who purchase U.S. dollar deposits now need to pay attention to the possibility of potential losses caused by the appreciation of the RMB exchange rate." Zhou Maohua reminded that judging from the trend, the Federal Reserve will constrain the upside space of the U.S. dollar after entering the interest rate cut cycle. Combined with the domestic economic recovery, foreign trade resilience and the long-term strategic allocation value of RMB assets, the RMB still has room for recovery.

A reporter from the Times Weekly calculated and found that if one exchanges currency according to the USD/OFFSHORE RMB exchange rate of 1:7.1349 (intraday) on August 23, and then purchases a one-year USD deposit with an annual interest rate of 5%, and if the RMB exchange rate continues to appreciate to around 6.88, then based on the actual interest rate denominated in RMB, the USD deposit will be equivalent to the current one-year deposit rate of the four major banks (1.35%).

The US dollar may be about to enter a cycle of interest rate cuts.

On August 23, Fed Chairman Powell said at the Jackson Hole Global Central Bank Annual Economic Policy Symposium in Wyoming that the time has come for the Fed to cut interest rates. Powell said that the time for policy adjustment has come and the policy direction has been made clear. The timing and pace of rate cuts will depend on upcoming data, changing prospects and the balance of risks.

The Times Weekly reporter noticed that some banks have already lowered their US dollar deposit rates. According to the official account of a branch of Hengfeng Bank, the bank's one-year US dollar deposit rate was 5% in March this year, and it was lowered to 4.9% in August.

Liu Xing also said that in July, the bank still had a US dollar time deposit with an annual interest rate of 5.2%, but it has now dropped to 5%. "In September, as the Federal Reserve cuts interest rates, it is expected that interest rates will fall further."