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Yuan hits near 5-month high as dollar languishes

    SHANGHAI, Aug 5 (Reuters) - The yuan hit a near five-month
high against the dollar on Wednesday, on deepening greenback
weakness and as a scheduled U.S.-China trade meeting gave some
investors hope the world's two largest economies could resolve
some of their grievances.    
    The dollar eased in the morning session, as Washington's
latest coronavirus relief package got bogged down in Congress
and investors braced for a bumpy ride to economic repair.
    While the yuan's strength mainly reflected a softer dollar,
several traders said the latest news on Sino-U.S. trade deal
evaluation suggested both sides were still talking, despite
worsening ties between the two. That helped support the local
currency.
    Sources told Reuters that senior U.S. and Chinese officials
would review the implementation of their Phase 1 trade deal and
likely air mutual grievances in an increasingly tense
relationship during an Aug. 15 videoconference.
    Onshore spot yuan opened at 6.9660 per dollar and
rose to a high of 6.9559 at one point, the strongest level since
March 11. By midday, it was changing hands at 6.9579, 169 pips
firmer than the previous late session close.
    Its offshore counterpart also jumped to a near
five-month high of 6.9577 per dollar before trading at 6.9588
per dollar at midday.
    "Whether the outcome of the trade deal review is positive or
negative on the yuan remains uncertain, and market has not
shaped clear expectations yet," said a trader at a Chinese bank.
    Traders and analysts said they would pay close attention to
the meeting but held low expectations of any major progress. 
    "There is unlikely to be any breakthrough, with the
commitment under Phase 1 deal still lagging," said Frances
Cheung, head of Asia macro strategy at Westpac in Singapore,
referring to overall purchase agreed by both countries in
January.
    Similarly, Ken Cheung, chief Asian FX strategist at Mizuho
Bank in Hong Kong, expects the trade agreement to stay largely
as it was.
    "It wouldn't do the United States any good to roll back the
agreement as it is hard to negotiate a better deal," he said,
adding the U.S. economy was unable to bear additional tariff in
light of business disruption brought by coronavirus shock.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.9752 per dollar, 51 pips
or 0.07% firmer than the previous fix of 6.9803. 
    The global dollar index fell to 93.115 at midday from
the previous close of 93.151. 

    The yuan market at 0313 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9752   6.9803    0.07%
                                       
 Spot yuan          6.9579   6.9748    0.24%
                                       
 Divergence from    -0.25%             
 midpoint*                             
 Spot change YTD                       0.08%
 Spot change since 2005                18.95%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.71       91.57     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.115      93.151    0.0
    
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.9588    -0.01%
        *                        
 Offshore              7.1148    -1.96%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 


 (Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam
Holmes)
  
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