Currently, the RMBThe exchange rateDemonstrate a strong rebound. On July 4, 2023, the shore yuan against the US dollar was closed at 7,2161, while the offshore yuan against the US dollar recovered at 7,22 points, rising 300 points within the day. The three-day rise in a row led to a 78 basis point increase in the average price of the peoples currency on July 5, on July 1968. The appearance of this rebound trend sparked an examination of the influence factors behind it.

On the one hand, foreign exchange market traders predict that Chinas relevant departments may adopt a policy of stable exchange rates, which anticipates that they will begin to clear the yuans empty position.

On the other hand, the Monetary Policy Committee of the Peoples Bank of China, at its regular meeting in the second quarter of 2023 on 28 June, proposed to deepen the reform of exchange rate marketization, guide enterprises and financial institutions to adhere to the risk neutral philosophy, stabilize expectations, prevent the risk of a major fall in exchange rates, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

At the same time, state-owned banks have lowered the dollar deposit rate and also played a promoting role in the rebound of the RMB exchange rate. It is that some overseas hedge funds have noticed that the average price of the RMB exchange rate since June 29 is higher than market expectations, indicating that Chinas relevant departments have begun to transmit stable exchange rate signals to the market. At the same time, in recent days, several large banks in the country have reduced the dollar deposit rate, which helps to reduce the interest rate.

However, although the current interest rate of the USD deposit products is still slightly higher than the interest rate of the RMB deposit products, those involved in USD deposits may face exchange risk. In recent years, the RMB exchange rate has increased its resilience and exchange rate fluctuations may offset the benefits of the deposit rate gap. Therefore, while USD deposits may bring higher returns in the short term, if the RMB exchange rate rebounds, the future may face the risk of exchange rate loss. This means that investors need to weigh between high returns and possible exchange rate risks. For individuals and who hold a large amount of USD assets in the territory, the choice of RMB deposits may be more robust.

In this context, a decrease in the interest rate of the dollar deposits by banks can somewhat cool the heat of the dollar finance and help reduce the exchange rate risk that reversal fluctuations in the RMB may bring to investors.This policy also demonstrates China’s determination to stabilize the exchange rate and weakens investor expectations for significant fluctuations in the exchange rate.

Overall, the recent rebound in the RMB exchange rate is the result of a multi-factor collaboration.This includes the expectation that foreign exchange market traders may adopt a stable exchange rate policy in China, the clear orientation of the Peoples Bank of China towards a stable exchange rate, and the decision of state-owned banks to lower the dollar deposit rate.In this complex environment, investors need to be careful about USD deposits to avoid possible exchange risk.

As investors, we should keep an eye on market dynamics, especially monetary policy and exchange rate changes, in order to make informed investment decisions. At the same time, it is necessary to understand that while US dollar deposits can bring higher returns in the short term, this does not mean there is no risk. Exchange rate fluctuations can cause losses to our investment, so when choosing an investment product, we should fully consider the possible risks and make a reasonable asset allocation based on our own risk tolerance.