The US dollar crept higher on Tuesday as the prospect of rising US interest rates this year kept sentiment bullish, while a surprisingly upbeat reading on Chinese manufacturing gave the Aussie dollar a lift.

Volumes were light in Asian trade due to a holiday in Japan, but USD/JPY rose above 118 by the start of the European session around 117.35 and well above Friday's trough of 116.05.

Against a basket of currencies, the dollar was 0.4 percent firmer at 102.600.

EUR/USD slipped to 1.0412 from an early bullish start to 1.0490, but remained far from the 1.0700 peak touched during Friday's brief spike.

The greenback had soared to 14-year highs in December on speculation the US Federal Reserve will hike rates as many as three times this year, and that President-elect Donald Trump will stoke growth and inflation with debt-funded tax cuts.

The Aussie got a lift to 0.7230 on Tuesday after data showed factory activity in China picked up in December, with output reaching a near six-year high. AUD/USD holds just above 0.7200.