Real Patch Notes

[Picoman]

Players are now able to color-customize items in a single step by combining it with dye and a base ingredient.
Furthermore, universal dyes have been introduced that can be used across all material types (lumber, cloth, metal, and leather).

Does that mean you can dye whatever color you want now? Or are they still restricted by certain equipment only having certain color variations?

I think its more that you don't specifically need 'red cloth dye' therefore simplifying it to 'red dye'.