The Appeal of High-Yield USD Fixed Deposits is Fading as Listed Companies Intensify Hedging Efforts

Source: Securities Times

Securities Times Reporter Wei Shuguang

Over the past year, significant fluctuations in global exchange rates have become an important foreign exchange risk faced by A-share listed companies.

Since the China-U.S. trade friction in April 2025, the RMB has appreciated approximately 7.4% against the US dollar (based on offshore RMB). Industry insiders say that over the past three years, companies have accumulated around $500 billion in foreign exchange reserves. To manage the risks brought by exchange rate volatility, domestic companies are increasing their use of foreign exchange derivatives for hedging.

Listed companies intensify exchange rate hedging

On March 17, Wangsu Technology announced that it would adjust its foreign exchange hedging limit to $200 million to strengthen global business exchange rate risk management. Wangsu stated that as its global operations expand, the scale of foreign currency settlements abroad continues to grow. To effectively avoid and prevent risks from foreign exchange market fluctuations and to reasonably control the impact of exchange rate risks on business performance, the company has decided to adjust and continue engaging in foreign exchange derivatives for hedging.

This is just one of the latest cases of listed companies actively participating in foreign exchange hedging. Securities Times data from Eastmoney Choice shows that as of March 18, this year, listed companies have issued a total of 460 announcements related to foreign exchange hedging, a significant increase of about 70% compared to 268 announcements in the same period in 2025.

Since the second half of 2025, the RMB has continued to appreciate against the US dollar, impacting the finances of export companies and increasing their foreign exchange losses. The offshore RMB exchange rate once broke through 6.83 in late February, reaching a new high since April 2023.

Against this backdrop, foreign exchange hedging has become increasingly important, with strategies shifting from single forward contracts to a combination of forwards, options, and other tools. According to data from the State Administration of Foreign Exchange, by the end of February this year, the total outstanding forward foreign exchange sales and purchases reached $1.07 trillion, a record high since 2010. During the same period, the net open interest of options was nearly $14.1 billion, approaching a two-year high.

Industry analysts interpret these rapid increases in these indicators as evidence that since the RMB exchange rate entered an appreciation channel in the first half of last year, export companies have significantly increased their net foreign exchange sales and purchased forward and options contracts to lock in exchange rates in advance and hedge against future fluctuations.

USD/RMB options trading volume surges

On February 27, the People’s Bank of China announced that the foreign exchange risk reserve requirement ratio for forward foreign exchange sales would be lowered from 20% to 0%. This was the first adjustment in nearly three and a half years since September 2022, when the ratio was raised to 20% to counteract depreciation pressures. It is also the sixth adjustment since the creation of this tool in 2015.

Following the announcement, the onshore RMB spot rate fell from a high of 6.84 to around 6.9, narrowing the gap with the central parity rate. Subsequently, since the US-Israel conflict in March and the impact of dollar appreciation, the RMB experienced a phase of passive depreciation. However, as of March 18, the RMB spot rate remained around 6.87.

“Since 2023, the accumulated foreign exchange reserves have been around $500 billion, with key exchange rate levels between 6.8 and 6.9. This range could be a critical decision point for exporters on whether to convert their foreign exchange holdings, with capital likely to engage in bilateral bets within this zone,” said Duan Chao, Chief Macro Analyst at Industrial Securities.

Duan believes that during the RMB depreciation over the past three years, China’s trade surplus increased but did not profit from exchange rate differentials, leading exporters to hoard foreign exchange. Although China’s trade surplus has widened, the significant unilateral depreciation trend over the past three years has reduced exporters’ willingness to convert foreign exchange after earning it, which is a key reason why the RMB exchange rate has not been strongly supported by exports. Historically, RMB appreciation has not constrained China’s export volume; the core reason for the disconnect between reality and theory lies in China’s leading manufacturing competitiveness globally.

Under the RMB appreciation trend, in February, the settlement and sale rates fell from January’s high, but the purchase and exchange rates further declined to new lows, indicating that market participants still have strong willingness to settle and convert foreign exchange, with cautious demand for foreign exchange purchases. Companies’ accumulated pending foreign exchange funds tend to be converted during exchange rate rebounds, forming a cycle of “appreciation—conversion—further appreciation.”

Foreign investment banks report that domestic clients are actively purchasing options structures to lock in current profits and maintain bullish exposure, targeting levels as low as 6.50 or even lower. According to data from the Depository Trust & Clearing Corporation (DTCC), by the end of February, USD/RMB options trading volume surged significantly, making it the second-largest options product globally. Notably, put options betting on RMB appreciation exceeded $100 million, twice the volume of call options betting on its decline.

High-yield USD deposits lose appeal

Looking at the longer term, since the China-U.S. trade friction in April 2025, the RMB has embarked on an appreciation journey.

In early 2025, due to higher US interest rates, USD wealth management products became very popular. Some investors bought foreign exchange in advance without paying much attention to exchange rate risks. A year ago, the one-year USD deposit rate was 4.5%. If they converted at maturity, they might not earn interest and could even lose part of their principal.

By 2026, the market generally expects the US dollar to remain weak, and USD deposit rates have continued to decline. Under the dual influence of RMB appreciation expectations and falling US interest rates, USD deposits—once considered a lucrative investment—are now seen as “hot potatoes.” Since March 2026, major Chinese banks have lowered USD deposit rates across the board to below 3%.