Dollar down before central banks meet

The Australian dollar rose, staying above $0.90 ahead of a decision on interest rates at 4:30 a.m. British time. Most dealers were expecting a quarter percentage point increase in the base rate, though the risk loomed of a more aggressive move.

Housing prices are on a tear in Australia, similar to other parts of Asia, keeping monetary authorities increasingly willing to take action to prevent bubbles.

Evidence of a sustained recovery in world industrial activity may force policymakers to spell out the pace at which unusually abundant and cheap money will be withdrawn.

The euro was up 0.2 percent to $1.4798. The bout of profit taking that lasted for a week appeared to have run its course, leaving the euro in a rising but narrowing trading channel.

The resumption of U.S. dollar weakness prompted traders to scoop up some bargains. The Australian dollar rose 0.4 percent to $0.9070, still off a 14-month high above $0.93 hit in October.

The Federal Reserve will kick off a two-day policy meeting on Tuesday, after which it is expected to keep rates unchanged. However, there is a chance the Fed will drop language on keeping rates low for an extended period of time.

"We do not expect that to happen, so the dollar should resume its trend downwards to the end of this year," said John Horner, foreign exchange strategist at Deutsche Bank in Sydney.

In equity markets, the MSCI index of Asia Pacific stocks outside Japan was largely steady, with gains in utilities and consumer discretionary stocks offsetting declines in financials.

The Thomson Reuters index of regional stocks <.TRXFLDAXPU> was up 0.9 percent.