The dynamics of the dollar investment market have continued to captivate attention this year, with absolute persistence in its appeal among individual investorsYet, as the Federal Reserve embarks on a journey of interest rate cuts, the anticipated financial landscape indicates that the rewards linked to dollar-denominated investment products are likely to diminish in the near futureStarting today, the annual interest rate on dollar savings deposits has been lowered by 12.5 basis points to 0.375%. Furthermore, Hang Seng Bank has also recently adjusted the fixed deposit rates for its dollar products, which still portray a significant interest rate advantage when juxtaposed with their Chinese Renminbi counterparts.

Market analysts suggest that the turning point for individual dollar products will hinge primarily on two factors: the ongoing trajectory of the Federal Reserve’s interest rate cuts and the shifting confidence of the market in dollar assets

As the interest rates for dollar deposits face an impending adjustment, corresponding effects on dollar investment products can be expected, putting downward pressure on potential yieldsHowever, should the pace of rate cuts by the Federal Reserve slow down next year, this turning point could well be postponed.

Interestingly, despite the backdrop of declining interest rates, dollar-denominated products continue to command a robust interest among investorsSince December, numerous banks have been rolling out new dollar investment products, often with yields that outshine those typically offered in Renminbi-denominated productsFor example, Bank of China and Agricultural Bank of China have introduced solid income dollar investment products with benchmark yields ranging from 3.9% to 4.7% and 3% to 4%, respectively.

Data from Pu Yi Standard reveals that as of December 9, there were 1,312 existing dollar investment products in the market, with a total value reaching 281.93 billion yuan, which is a remarkable doubling from the 140.35 billion yuan reported at the end of December last year

The “Global Gain Dollar Investment Product 3-Hui,” launched by ICBC Wealth Management, has registered an annualized return of 5.15% since its inception, with a benchmark performance of 4.8%, categorized as a low-risk investment with a minimum purchase amount of just one dollar, automatically maturing in 368 daysBank of China’s fixed income dollar closed investment product launched on December 5 features a 96-day term, with the performance benchmarks noted between 3.9% and 4.7%, mostly allocating raised foreign currency funds to domestic and foreign monetary markets.

Moreover, data from Xingyin Wealth Management shows that by December 6, the total balance of foreign currency and cross-border investment products has exceeded 30 billion yuan equivalent, marking a twofold increase compared to the end of last yearAmong these, newer product offerings such as the “Huili Stable Three-Month Closed Product” have demonstrated benchmark performance rates fluctuating between 4.2% and 4.3%.

In light of the Federal Reserve's interest rate cuts, there remains a liquidity premium for dollar products, especially in contrast to their Renminbi analogs

According to Ai Yawen, a senior analyst at Rong360 Digital Technology Research Institute, ongoing trends are influenced by a myriad of factors including the global economic landscape, interest rate fluctuations, and movements in the dollar indexHe asserts that the allure of dollar investment products is expected to persist in the short term.

Investor interest is further drawn by the appealing yields offered by dollar deposit products, many of which maintain rates exceeding 4%. For instance, Capital Bank's dollar fixed deposit products yield rates of 4.3%, 4%, and 3.7% respectively for 3-month, 6-month, and 12-month termsJiangsu Bank’s "Xiangyingbao" foreign currency deposit product demands a minimum entry of $2,000, showcasing rates of 4.35%, 4.2%, 4.1%, and 4.1% for 1 month, 3 months, 6 months, and 1-year fixed terms.

The reason behind the enduring attractiveness of dollar investments amidst an interest rate reduction cycle is deeply rooted in the strong expectations surrounding the dollar's exchange rate

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Tian Lihui, the Dean of the Financial Development Research Institute at Nankai University, highlights that should the market forecast the dollar to either appreciate or remain stable, the inherent value of holding dollar assets is only enhanced, allowing investors to benefit from potential appreciation even amid falling interest rates.

However, as the pace of interest rate reductions escalates, the yield advantages of dollar products may become less favorableAnalysts like Zhang Jing from Huabao Securities express concern that the onset of the Federal Reserve's rate cuts will lead to adjustments in dollar deposit rates, directly impacting dollar investment products and placing them under pressure for reduced yields.

The strong performance of dollar-backed fixed income products stems from a combination of supportive monetary policy from the Federal Reserve, ongoing economic recovery, and ample liquidity within the global markets

Nonetheless, this landscape faces potential disruptions from a myriad of complexities within the global economy, including rate hike cycles, geopolitical risks, and the possibility of market corrections that could ultimately influence future returns on dollar-denominated assets.

Given the notable volatility observed in the dollar's performance over recent months, with the dollar index oscillating at elevated levels, investors are advised to remain vigilant regarding currency fluctuation risks, as pointed out by Zhou Maohua, a macro researcher in the Financial Markets Division of Everbright Bank.

In summary, while the general trend favors the continued allure of dollar-denominated financial products due to declining global market interest rates and tepid economic growth, the turning point for these investment vehicles appears intricately tied to the sustainability of rate cuts by the Federal Reserve and shifts in market reliance on dollar assets