<p>The paper employs wavelet analysis to investigate a complex dynamic relationship between exchange rate and interest rate. The results show that there is a complicated relationship between exchange rate and interest rate differentials in Chinese Renminbi, and the relationship between them is relatively stable in initial low frequency cycle but shows different intensities for different currency pairs. However, there are block-like continuous strong and weak change in the middle- and low- frequency phase, while there is a random alternating change in strength and weakness in middle- and high- frequency stages for all currency pairs. The value of this paper is that it uses wavelet and its coherence and disaggregate data to more carefully diagnose phased correlation between exchange rate and interest rate, so as to overcome the shortcomings of using aggregated data for superficial research, providing a solid theoretical basis for relevant policy formulation and decision-making. The policy implication is that, due to the imperfection of China’s money market at present, it is necessary to use interest rate and exchange rate policies to adjust the economy simultaneously.</p>