High-yield dollar fixed deposits no longer attractive as listed companies increase forex hedging efforts

Securities Times Reporter Wei Shuguang

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

Since the China-U.S. trade tensions 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 from exchange rate volatility, domestic companies are increasing their use of foreign exchange derivatives for hedging.

Listed Companies Increase Currency Hedging

On March 17, Wangsu Technology announced that it has adjusted 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 movements on its operations, the company has decided to adjust and continue engaging in foreign exchange derivatives for hedging.

This is just one of the latest examples of listed companies actively participating in foreign exchange hedging. According to data from Eastmoney Choice, as of March 18, this year alone, 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.

In this context, currency hedging has become increasingly important, with strategies shifting from solely forward contracts to a combination of forward, options, and other instruments. According to data from the State Administration of Foreign Exchange, by the end of February this year, the total outstanding forward foreign exchange contracts reached $1.07 trillion, the highest since 2010. During the same period, the net open interest of outstanding 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 began appreciating 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 it would reduce the foreign exchange risk reserve requirement ratio for forward foreign exchange sales from 20% to 0%. This was the first adjustment in nearly three and a half years since September 2022, when the ratio was increased to 20% to counter depreciation pressures. It is also the sixth adjustment since the creation of this tool in 2015.

Following the announcement, the RMB spot exchange rate retreated 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, the RMB experienced a phased depreciation driven by US dollar appreciation. 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 most holdings concentrated at exchange rates of 6.8 to 6.9. This range could be a key decision point for exporters on whether to convert their foreign exchange holdings, with funds likely to engage in bilateral betting 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 the exchange rate difference, leading exporters to accumulate foreign exchange reserves. Although China’s trade surplus has widened, the significant trend of unilateral depreciation over the past three years meant exporters were less inclined to convert their foreign exchange earnings, 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 exchange rate fell from its January high, but the purchase and sale rate further declined to new lows, indicating that market participants still have strong willingness to settle foreign exchange, with cautious demand for foreign currency purchases. Companies’ accumulated pending foreign exchange holdings tend to be settled during RMB appreciation, forming a cycle of “appreciation—settlement—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 DTCC (Depository Trust & Clearing Corporation), by the end of February, USD/RMB options trading volume surged significantly, making it the second-largest options market 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 No Longer Attractive

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

In early 2025, due to high US interest rates, USD deposits became very popular, with some investors converting their foreign exchange holdings into USD without regard for exchange rate risks. A year ago, the one-year USD deposit rate was 4.5%. If investors converted at maturity, they might not have earned interest and could have even lost part of their principal.

By 2026, the market generally expected the US dollar to remain weak, and USD deposit rates 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 a “hot potato.” Since March 2026, major Chinese banks have lowered USD deposit rates across the board to below 3%.