China's yuan holds steady ahead of Trump-Xi call

SHANGHAI, Sept 19 (Reuters) - China's yuan held steady against the dollar on Friday, even as the central bank set its midpoint at a more than three-week low, with investors waiting on leads from a potentially crucial phone call between the leaders of the world's two largest economies.

Trade relations between Washington and Beijing have long been one of the key factors influencing the yuan's value and market sentiment over the past few years, and the call due later in the session could affect the outlook of the Chinese currency.

A framework agreement to switch short-video app TikTok to U.S.-controlled ownership will be confirmed in the call between U.S. President Donald Trump and Chinese President Xi Jinping, while talks about a trade truce is also expected on the agenda.

"Trump and Xi will hold a call tonight, which is expected to formalize an agreement on TikTok and signal a possible easing of trade tensions," said Chang Wei Liang, FX & credit strategist at DBS.

As of 0404 GMT, the onshore yuan CNY=CFXS was 0.02% higher at 7.1117 per dollar, while its offshore counterpart CNH=D3 was down about 0.01% in Asian trade to 7.1101.

Prior to the market's opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.1128 per dollar, its weakest since August 26 and 46 pips firmer than a Reuters' estimate CNY=RTRS of 7.1174. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Investors have been carefully gauging the central bank's daily guidance fix for any subtle changes in the official stance after the Chinese currency gradually rose to the strongest level since November in recent sessions, currency traders and analysts said.

The much weakened yuan midpoint fixing could suggest that the central bank still prefers a measured yuan appreciation, said a trader at a Chinese bank, noting neither rapid appreciation nor depreciation is ideal from the PBOC's perspective.

Separately, a recent sharp stock rally has prompted some global investment houses to revise up their yuan forecasts.

"China A-shares have outperformed the S&P 500 and most Asian indices, but the equity rally in China has thus far been domestically driven," said Abbas Keshvani, Asia macro strategist at RBC Capital Markets.

"If foreigners were to shed their aversion to China stocks and wade in, it could drive yuan outperformance, instead of mere dollar-driven appreciation."

They expect the yuan to trade at 7.08 per dollar at end-2025, and 7.0 at end-2026, versus 7.2 and 7.08, respectively, in a previous prediction.

China's stock market has been on a tear, with the benchmark Shanghai Composite Index .SSEC hovering near its 10-year highs. .SS

LEVELS AT 0404 GMT: