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Asian Session – China shares reverse earlier slide; dollar down ahead of FOMC minutes

Shares in China extended their losses for a second day after falling 6% on Tuesday. The main indices were down over 4% earlier in the session but managed to bounce back towards the close. The Shanghai SE Composite was down by 0.4%, while the CSI 300 index was up 0.1% in late Asian trading. The latest sell-off was triggered by concerns that the Chinese government is in no hurry to intervene with additional stimulus measures. Instead, the People’s Bank of China has been injecting liquidity into the economy via its open market operation, signalling that it may not be ready to ease monetary policy just yet.

The yuan’s devaluation continued to have repercussions on other emerging market currencies as the State Bank of Vietnam devalued the Vietnamese dong by lowering the midpoint by 1% and widened the trading band. Other Asian currencies such as the Thailand baht, Malaysian ringgit and the Taiwan dollar continued to weaken against the US dollar.

The late rebound in Chinese shares lifted the Australian dollar, which climbed to 0.7355 against the greenback in late Asian session from an earlier low of 0.7313. But the kiwi was mostly flat at 0.6593. A small rebound in global dairy prices provided some support to the New Zealand dollar.

Japanese trade figures out today showed Japan’s exports rising by a larger-than-expected 7.6% in July, though this was slower than the previous month. The data had little impact on the yen. The dollar was slightly down at 124.26 yen but the euro was firmer at 137.56 yen.

The single currency also edged higher against the dollar, rising to 1.1070 as the German parliament is set to vote in favour of the third Greek bailout despite a large rebellion. But the latest bailout is causing trouble for the Dutch government, which is facing a no-confidence vote.

The pound managed to hold on to most of its gains from Tuesday after stronger-than-expected inflation figures for July raised expectations of the Bank of England raising interest rates sooner rather than later. The pound was trading at 1.5673 against the dollar in late Asian session, while the euro attempted to recover some of yesterday’s losses by climbing to 0.7058 against sterling.

The Canadian dollar rose against the greenback despite ongoing weakness in oil prices. The US dollar slipped to 1.3039 against the loonie in late Asian session.

The rest of the day will focus on US data as July inflation figures are released and the Fed will publish the minutes of its latest FOMC meeting. Investors will be closely looking at both data as speculation intensifies as to whether the Fed will raise interest rates at its September meeting with recent data pointing towards a broadening recovery of the US economy.

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