China's official purchasing management index (PMI) dipped to 50.1 April, when speculators had wagered on a steady outcome of 50.5 or even an improvement. A measure of services also disappointed with a pullback to 54.3.

The Aussie is often used as a liquid proxy for China plays given Australia is a major exporter of resources to the Asian giant. The currency quickly eased to $0.7040 after the PMI release, from $0.7064.

The safe-haven yen got a lift, with the Aussie losing 0.4 percent to 78.59, while holding steady on the U.S. dollar at 111.59 yen.

Against a basket of currencies, the dollar was flat at  97.859 and still not far from last week's near two-year peak of 98.330.

The euro was little moved at $0.1180 as investors await figures for economic growth in the common currency bloc due later in the session.

Forecasts are for a modest rise of 0.3 percent in the first quarter, although that would still be faster than the previous quarter and may be taken as a sign of stabilisation.

Even such tentative growth could squeeze speculators who have been amassing large short positions in the euro, worth a net $14.8 billion in the week to April 23.

A major hurdle for the dollar remains the Federal Reserve's two-day policy meeting which ends on Wednesday with a statement and a news conference by Chairman Jerome Powell.

No change in policy is expected but the market is keen to hear how Powell resolves the divergence between solid economic growth and slowing inflation.

U.S. data overnight showed consumer spending enjoyed the sharpest rebound in 9-1/2 years in March, yet core inflation still slowed to a 14-month low.

The core personal consumption expenditures index, the Fed's favoured measure of inflation, slowed to 1.6 percent and further way from the central bank's 2 percent target.

"A sustained acceleration in core inflation remains elusive and is contributing to low inflation expectations," said ANZ economist Felicity Emmett. "This is not just an issue for the FOMC, it is a real concern for other major central banks."

"We expect the dovish tone from central banks to continue for the foreseeable future," she added. "Given evidence of a recovery in growth, this is very positive for risk assets."