"A significant slowdown in Chinese growth could once again foil the plans of U.S. authorities to stabilize monetary policy," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
"Still it may be premature to consider such a possibility, but today's news certainly sets the stage for a deeper correction in the dollar," Schlossberg added.
Exports from China, the world's second largest economy, fell 5.6 percent in yuan terms in September from a year earlier and 10 percent in dollars.
The dollar has gained more than two percent so far this month against a basket of currencies, boosted by U.S. rate hike expectations. Investors have priced in a roughly 70 percent chance the Fed would nudge rates higher at its December policy meeting, a prospect reinforced by Wednesday's release of the last Fed monetary policy meeting minutes.
Minutes of the Fed's September meeting showed that the Federal Open Market Committee was deeply divided over the timing of the next interest rate hike, as several members agreed the Fed should raise rates in the near term if U.S. data continued to strengthen.
In mid-morning trading, the dollar index slipped 0.3 percent to 97.695, after notching a seven-month peak earlier in the session.
"I believe that spreads between U.S. Treasury yields and those of other major sovereign bonds will be a key indication on how the dollar will perform," said UK-based Lukman Otunuga, FXTM research analyst. "If spreads continue to widen, the dollar index could be heading towards 100 by year-end."