By Saumya Vaishampayan, MarketWatch

NEW YORK (MarketWatch) -- The U.S. dollar rose against the Australian dollar after weaker-than-expected inflation data made investors adjust expectations for an Australian rate hike, while the euro strengthened after positive manufacturing data.

U.S. sales of new single-family homes dropped 14.5% in March to an annual rate of 384,000, sharply missing expectations. Separately, the initial Markit purchasing managers index ticked down to 55.4 this month from 55.5 in March. Read: Is it time to freak out about housing?

The Australian dollar (AUDUSD) fell to 92.88 U.S. cents from 93.66 U.S. cents late Tuesday. Australia's consumer price index rose 0.6% in the first quarter, boosting its annual rate to 2.9%. That missed expectations of a 0.8% gain in the period, which would have pushed annual inflation above the Reserve Bank of Australia's 2% to 3% target and could have bolstered expectations for an interest-rate hike.

In China, HSBC's preliminary version of its purchasing managers index rose to 48.3 in April from 48.0 last month, ending consecutive declines since October. A reading below 50 indicates contraction. The report's details showed a decline in new export orders and an acceleration in the drops for employment and work-backlog. Read more: Chinese factory data show mild rebound

The Chinese yuan hit a 16-month low in the wake of the data.

"It's really hard to interpret that data," said Lane Newman, director at ING Capital Markets. "At the end of the day, the direction of growth in that country is up," he said. Concerns about a slowdown in Chinese growth roiled markets earlier this year, weighing on several emerging-market currencies.

The euro (EURUSD) rose to $1.3816 from $1.3805 late Tuesday. Euro-zone manufacturing and services businesses saw activity expand in April at the fastest pace since May 2011, with Markit's composite purchasing managers index rising to 54.0 from 53.1 in March.

Analysts at Morgan Stanley said the euro is most closely correlated to the asset markets of peripheral euro-zone countries, which have been outperforming.

"With the increased market expectations for QE providing support to European asset markets and peripheral markets outperforming as a result of renewed foreign investor appetite, we would anticipate EUR remaining supported, at least until the ECB decides to take action," they said in a note.

In other action, the British pound (GBPUSD) fell to $1.6782 from $1.6826. The dollar (USDJPY) fell to Yen102.53 from Yen102.60 late Tuesday.

The New Zealand dollar (NZDUSD) edged down to 85.80 U.S. cents from 85.99 U.S. cents. An interest-rate decision from the central bank is due at 5 p.m. Eastern. The market is expecting a hike of 25 basis points and dovish comments, said Newman of ING.

The ICE dollar index (DXY), a gauge of the dollar's strength against six rivals, was at 79.869 versus 79.891 late Tuesday. The WSJ Dollar Index , which measures the greenback against more rivals, was at 73.11 versus 73.06.

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