(Updated at 0330 GMT)
The dollar slid to a two-month low on Monday, extending its downtrend from last week as traders reaffirmed their belief that U.S. rates have peaked and turned their attention to when the Federal Reserve could begin cutting rates.
The yuan struck three-month highs in both the onshore and offshore markets, propped up by China's central bank, while the Australian dollar AUD=D3 similarly scaled a three-month top against the falling greenback.
The dollar index =USD in Asia trade bottomed at 103.64, its weakest level since Sept. 1, extending its nearly 2% decline from last week -- the sharpest weekly fall since July.
Markets have priced out the risk of further rate hikes from the Fed following a slew of weaker-than-expected U.S. economic indicators last week, particularly after an inflation reading that came in below estimates.
Focus now turns to how soon the first rate cuts could come, with futures pricing in a 30% chance that the Fed could begin lowering rates as early as next March, according to the CME FedWatch tool.
"Market pricing for FOMC policy is likely to remain pretty steady, so the dollar should have very few catalysts to move it around this week," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). "If we do see risk appetite improve again, then the dollar can definitely weaken further."
Against the weaker dollar, the euro EUR=EBS rose to an over two-month high of $1.0924, ahead of flash PMI readings in the euro zone due later this week.
Sterling GBP=D3 was last 0.1% higher at $1.2475. Also due this week are minutes of the Fed's latest meeting, which will offer some colour on policymakers' thinking as they held rates steady for a second time earlier this month.
"(The) FOMC minutes may be framed as a 'Fed pivot', thereby underscoring risk-on rallies favouring softer U.S. Treasury yields and U.S. dollar, alongside buying in risk assets," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.
"The upshot is that the FOMC minutes may overstate incremental dovish shifts and likelihood of the Fed's intended pivot signals."
The decline in the greenback brought some reprieve for the Japanese yen JPY=EBS , which sat on the stronger side of 150 per dollar and last gained 0.4% to 149 per dollar.
The risk-sensitive Australian dollar AUD=D3 edged roughly 0.5% higher to $0.6546, its strongest level since August, while the New Zealand dollar NZD=D3 rose 0.52% to $0.60235.
In Asia, China on Monday left its benchmark lending rates unchanged at a monthly fixing, matching expectations, as a weaker yuan continued to limit further monetary easing and policymakers waited to see the effects of previous stimulus on credit demand.
The yuan found some support after the country's central bank set the currency mid-point CNY=PBOC at its strongest level since Aug. 11.
The onshore yuan CNY=CFXS rose 0.5% to an over three-month high of 7.1753 per dollar, while the offshore yuan CNH=D3 similarly got a boost and jumped roughly 0.6% to an over three-month top of 7.1745 per dollar.
The yuan, which has fallen nearly 4% against the dollar this year in the onshore market, continues to be pressured by a faltering economic recovery in China and as investor sentiment remains fragile.
"I think the theme of a soft Chinese economic recovery will persist for a while," said CBA's Kong.
"Until we get a more meaningful recovery in the Chinese economy, I think that will be a headwind for the (yuan), Aussie and the kiwi in the near term."
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