In the U.S. on Tuesday, data showed the U.S. Institute for Supply Management (ISM) non-manufacturing purchasers manager index (PMI) index fell to 51.4 last month from 55.5 in July. While levels above 50 still indicate expansion, it was the lowest reading since February 2010.
The miss, along with Friday's disappointing nonfarm payroll data, likely spurred traders to step away from expectations of a September Fed hike.
"The [ISM] number is a serious miss and all but wipes out the chance of a Fed rate hike in September. If data continues to weaken, we will see the chances of December rate hike fall sharply as well," Anthony Darvall, chief market strategist at trading platform easyMarkets, said in a Wednesday note.
However, San Francisco Fed President John Williams remained unperturbed by the weaker economic data, and stressed that it still "makes sense to get back to a pace of gradual rate increase, preferably sooner rather than later," in a Tuesday speech to the Hayek Group in Reno, Nevada.
Traders were parsing his speech for clues to the next Fed move.
"Fed's William has added more color to the U.S. rate hike odds. You can say that it is pretty much a trend that after a weak or fragile data, we do get somewhat hawkish comments from various different Fed members, and they try to fade the effects of the data on the dollar," said Naeem Aslam, chief market analyst at ThinkMarkets, in a Wednesday note.
"A few more Fed members may add more ingredients to this recipe in the coming days, and only one more bullish economic reading could make the current dollar dip look like a buy opportunity," Aslam said.
In the currency market, the dollar fell more than 1 percent against the yen, euro, pound, Australian dollar and other major currencies during the U.S. Tuesday session. The dollar index was trading at 94.744 in Asian trade, down from levels over 96 last week.
The Australian dollar was trading at $0.7672 during Asian trade, up from levels under $0.75 last week, getting a boost from waning expectations for a September Fed hike and after the Reserve Bank of Australia (RBA) on Tuesday kept interest rates on hold. Analysts parsing the RBA statement noted that the central bank appeared to be signaling concerns that further rate cuts might overheat the housing market.
Australia's gross domestic product (GDP) for the second quarter rose 0.5 percent on-quarter, just a smidgen below expectations of 0.6 percent growth from a Reuters poll, data released Wednesday showed.
In Japan, internet company Rakuten's shares rose 7.2 percent after the announcement that it would be included in the Nikkei Average, Reuters reported.
South Korea's Hanjin Shipping won a U.S. judge order extending bankruptcy protections so its vessels can dock at U.S. ports without fear of creditors trying to seize the ships, Reuters reported. The troubled container shipper saw shares shed 2.16 percent, retracing gains after Tuesday's 29.91 percent surge.
U.S. crude oil futures traded up 0.47 percent at $45.04 a barrel, while Brent futures gained 0.44 percent to $47.47, after falling 0.8 percent the day earlier on receding hopes of an agreement between Saudi Arabia and Russia to freeze output.
Despite higher crude prices, oil-related stocks in Asia were mostly lower. Australia's Santos was lower by 4.98 percent and Woodside Petroleum was down 0.84 percent. Japan's Inpex slipped 0.92 percent, while mainland China's Petrochina was flat.
In Southeast Asia, Malaysia's central bank held its benchmark rates steady at 3.0 percent, because the economy was projected to remain steady and expand within its expectations this year, Reuters reported.
Markets were watching for China's August foreign exchange reserves and the U.S. Fed Beige Book due later.
U.S. markets had initially turned lower shortly after the ISM data was released, but managed to rise again as the odds of a September rate hike were lowered. The Dow Jones industrial average ended up 0.25 percent, the S&P 500 closed up 0.3 percent and the Nasdaq closed up 0.5 percent, posting a new all-time high at 5,275.91.
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