Yuan edges lower in tight trade as investors await trade data, monitor Sino-US ties

SHANGHAI, Aug 6 (Reuters) - China's yuan softened against a steady U.S. dollar on Wednesday, trading in tight ranges as investors awaited key trade data and monitored Sino-U.S. trade developments for direction.

President Donald Trump said on Tuesday the U.S. was close to a trade deal with China and that he would meet his Chinese counterpart Xi Jinping before the end of the year if an agreement was struck.

"If the U.S.-China tariff truce is to be extended, China and rest of the world tariff differential will likely narrow after the modified reciprocal tariffs on other economies become effective," Citi analysts said in a note.

Investors are awaiting China's July trade data due on Thursday for signs of how U.S. tariffs may be impacting exports, with Citi economists forecasting an 8% rise in outbound shipments and a 1% contraction in imports.

The spot yuan CNY=CFXS opened at 7.1898 per dollar and was last trading at 7.1895, 61 pips lower than the previous close and 0.68% weaker than the midpoint.

The yuan moved within a narrow range of just 33 pips in morning trades. Market participants said the yuan was likely to remain range-bound, as regulators' stance on the daily midpoint limits room for significant moves as sharp appreciation could hurt exports.

Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 7.1409 per dollar, 388 pips firmer than a Reuters estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The dollar was rangebound on Wednesday, with investors choosing to stay on the sidelines ahead of Trump's pick to fill a coming vacancy on the Federal Reserve's Board of Governors.

The dollar index .DXY has dropped 9% this year. The dollar weakness has provided China with a window to push back against cutthroat price wars to improve domestic inflation, an economist at China Merchants Securities said in an investor call.

Starting from September or October, the economist expected China to roll out more "anti-involution" policies, supporting a potential rebound in producer prices and paving the way for a strengthening trend in the yuan.

China's top leaders have pledged to support an economy that is facing various risks by managing what is viewed as disorderly competition and beefing up capacity cuts in key industries in the second half of the year.

The offshore yuan traded at 7.193 yuan per dollar CNH=, down about 0.05% in Asian trade.

The yuan is up 0.2% against the dollar this month, and 1.5% firmer this year.

Key onshore vs offshore levels:

• Overnight dollar/yuan swap onshore -6.50 pips vs. offshore -6.50

• Three-month SHIBOR SHIBOR= 1.6 % vs. 3-month CNH HIBOR 1.7 %

LEVELS AT 0218 GMT