By Rae Wee

SINGAPORE The dollar inched higher on Tuesday but traded in a narrow range as investors were hesitant to take on new positions ahead of a key U.S. inflation reading this week, while focus in Asia turned to China's trade data out later in the day.

China's exports are expected to fall 12.5% in July from a year earlier, based on a Reuters poll of economists, extending a drop of 12.4% in June and marking the worst reading since the early days of the pandemic in February 2020.

The trade figures come a day ahead of the country's inflation reading, with markets on the lookout for further signs of deflation in the world's second-largest economy.

Ahead of the data release, the offshore yuan was little changed at 7.2039 per dollar.

The Australian and New Zealand dollars, often used as liquid proxies for the yuan, were meanwhile weaker in early Asia trade.

The Aussie slipped 0.05% to $0.6571, while the kiwi fell 0.08% to $0.6102.

"This week's economic data ... will continue to paint a picture of a weak Chinese economic recovery," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"The correlation between the Aussie and the kiwi and the (yuan) has been pretty strong recently...so potentially there's some more downside to the Aussie and kiwi."

In the broader currency market, the U.S. dollar rose broadly, gaining 0.37% against its Japanese counterpart to last stand at 142.98 yen.

Data on Tuesday showed that Japanese real wages fell for a 15th straight month in June on relentless price hikes, but nominal pay growth remained robust amid rising salaries for high-income workers and a broadening labour crunch.

Sterling fell 0.12% to $1.2770, while the euro weakened 0.1% to $1.0991.

The common currency had slipped against the U.S. dollar in the previous session on news that German industrial production dropped more strongly than forecast in June.

"These data add further confirmation that tighter monetary conditions are doing what it says on the tin," said ANZ analysts in a note.

The dollar index rose 0.14% to 102.22, edging away from a one-week low it hit on Friday in the wake of a mixed U.S. jobs report, with all eyes now on Thursday's inflation data where expectations are for core consumer prices to have risen 4.8% on an annual basis in July.

"With the (Federal Reserve's) interest rate policymaking remaining data dependent, every data point has been eliciting an even higher level of vigilance," said Gary Dugan, chief investment officer at Dalma Capital.

"Some will argue that U.S. growth is very robust at present, which would naturally cause greater inflation risk."

(Reporting by Rae Wee. Editing by Sam Holmes)