SHANGHAI, June 28 (Reuters) - China's yuan inched up against the dollar in thin trade on Friday, as traders stayed sidelined ahead of a weekend meeting that could lead to progress in ending a year-long trade war between the world's two largest economies. U.S. President Donald Trump has agreed to no preconditions for his high-stakes meeting with Chinese President Xi Jinping at the G20 summit in Osaka, Japan, on Saturday. Traders said the outcome of the meeting is the key focus for global markets as the protracted trade war has roiled financial markets and hurt global economic growth. "It is hard to predict the outcome of the bilateral meeting, whether it's going to be more positive or negative. But a breakdown in trade negotiation seems unlikely at this juncture," said a trader at a Chinese bank. Prior to market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.8747 per dollar, 31 pips or 0.05 percent firmer than the previous fix of 6.8778. In the spot market, onshore yuan opened at 6.8730 per dollar and was changing hands at 6.8740 at midday, 38 pips firmer than the previous late session close. If the yuan finishes the late night session at the midday level, it would have lost 0.09 percent to the dollar for the week after gaining 0.85 percent a week earlier. The onshore spot yuan swung in a range of less than 70 pips in morning trade, with volume shrinking to $9.08 billion by midday, compared with a normal half-day volume of about $15 billion. Traders said investors were mostly taking a wait-and-see approach to the summit and were unwilling to bet on either side of the market amid the uncertainties. Several traders said they had already closed out their yuan positions, but added there was some demand for dollars from corporate clients who have to meet payments by the end of June. "For now, we are reduced to headline-watching ahead of the Xi-Trump meeting, with markets reactive to stray reports on purported Xi-Trump outcomes," FX strategists at OCBC Bank said in a note. They also said "headline risk stemming from China will be heavy in the coming days", as China will start releasing economic data for June that will offer a snapshot of the health of the world's second-largest economy. Philip Wee, FX strategist at DBS Group Research, said in a report this week that a trade deal was not expected at the summit in Osaka and it was unlikely China would be keen on another trade truce. However, any upside surprises would lead to a relief rally in the yuan, although the United States still needed to remove tariffs for an appreciation past 6.70 per dollar, he added. In global markets, the dollar index rose to 96.212 at midday from the previous close of 96.194. The offshore yuan was trading at 6.8748 per dollar as of midday.
The yuan market at 0401 GMT:
Item Current Previous ChangePBOC midpoint 6.8747 6.8778 0.05%Spot yuan 6.874 6.8778 0.06%Divergence from -0.01%
Spot change YTD -0.01%Spot change since 2005 20.40%
Item Current Previous ChangeThomson 93.19 93.23 0.0
Reuters/HKEX CNH index
Dollar index 96.212 96.194 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 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.8748 -0.01%*Offshore 6.9105 -0.52%
*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 John Ruwitch; Editing by Jacqueline Wong)