Central bankers will gather at Jackson Hole, Wyoming, on Friday, with markets awaiting a speech by U.S. Federal Reserve Chair Jerome Powell. Investors expect the Fed to give more clues on further interest rate cuts in the United States, setting the tone for currencies.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.0433 per dollar, 21 pips firmer than the previous fix of 7.0454.
In the spot market, onshore yuan opened at 7.0566 per dollar and was changing hands at 7.0537 at midday, 73 pips firmer than the previous late session close.
Onshore spot yuan traded in a tight range of less than 70 pips in the morning session, with trading volume also falling to $11.744 billion at midday, down from a normal half-day volume of about $15 billion.
Financial markets are betting on another Fed rate cut on Sept. 18, as well as easing by the European Central Bank next month. Some analysts believe China could also lower its new benchmark lending rate on Sept. 20.
Traders were also waiting for more news in the Sino-U.S. trade dispute. U.S. President Donald Trump said on Tuesday he had to confront China over trade even if it caused short-term harm to the U.S. economy because Beijing had been cheating Washington for decades.
Separately, the offshore yuan gained some support from signs of liquidity tightness in Hong Kong.
Yuan borrowing costs edged up in the financial hub on Wednesday morning as seen from rises in the CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor) across tenors.
Traders and analysts suspect that the tensions could be a result of increasing yuan demand for bond buying flow into mainland.
And some believe the yuan liquidity tightness could anchor offshore yuan sentiment as rises in the borrowing costs mean shorting the Chinese currency has become more expensive.
The one-week contract rose to 3.84570%, the highest since November 2018, and was 44 basis points higher than the previous fix of 3.40620%.
Front-end CNH forward points also edged up on Wednesday morning.
The global dollar index rose to 98.228 at midday from the previous close of 98.19.