Yuan finishes domestic trade near 5-month high, recoups 2020 losses

Updates prices

SHANGHAI, Aug 5 (Reuters) - The yuan finished the domestic session at a near five-month high against the dollar on Wednesday amid deepening weakness in greenback and as scheduled U.S.-China trade talks gave investors hope the countries could resolve some of their grievances.

The onshore yuan CNY=CFXS ended its domestic trading session at 6.9530 per dollar, its strongest close since March 11. The offshore yuan CNH=D3 also stood at a near five-month high of 6.9479 around 0835 GMT, up 0.42% on the day.

The onshore yuan has now recovered all its losses so far this year and is up 0.15% against the dollar. In 2019, it weakened 1.3%.

While the yuan's strength mainly reflected a softer dollar several traders said news of an upcoming Sino-U.S. trade meeting suggested that 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.

"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 expectations were low for any major progress in the talks.

"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 purchases 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 disruptions brought by coronavirus shock.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.9752 per dollar, 51 pips or 0.07% firmer than the previous fix of 6.9803.

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

((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

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