China's manufacturing activity contracted for a third straight month in March, a private survey showed on Monday.
The flash Markit/HSBC Purchasing Managers' Index (PMI) came in at 48.1, compared with a final reading of 48.5 in February, staying below the 50-mark that divides contraction from expansion in the sector.
The Australian dollar fell 0.3 U.S. cents to 0.9054 after hitting an intraday high of 91 U.S. cents earlier in the session. Asian stock markets showed little reaction with the Shanghai Composite 0.1 percent higher, while Japan's Nikkei led gains by 1.4 percent.
"I think it's a sign that the economy really is contracting, activities are slowing. I think first quarter GDP [gross domestic product] could be on the low side of 7 percent," Alistair Chan, an economist at Moody's Analytics told CNBC, attributing the slowdown to a tightening by the central bank up until June last year.
China's interbank rates, which soared above 10 percent in June last year on concerns of a credit squeeze, have been closely monitored by markets for signs of liquidity strains.
"I think this slowdown is a buildup from that tightening. The loosening in the second half of last year has yet to flow through, so if you look at the stimulus that took place in July, in the form of the increase in bank lending last year, and the recent depreciation of yuan has yet to flow through to the economy," Chan added.