Australia's economic rebalancing away from the mining boom is still in its early stages, a top central banker said on Thursday, while cautioning investors they were underestimating the risk of sharp fall in the local dollar.
The warning on the currency from Reserve Bank of Australia (RBA) Governor Glenn Stevens had the desired impact - knocking the local dollar down half a U.S. cent to $0.9380.
Investors also took Stevens's comments as reinforcing the outlook for rates staying at record lows, and perhaps even nudging open the door for another cut if needed.
"The Governor has delivered his clearest statement yet that super-low interest rates are likely to be part of the economic landscape over the medium term," said Savanth Sebastian, an economist at CommSec.
Markets now put the chance of a cut in the 2.5 percent cash rate by year end at around 50-50, a shift that was encouraged by a disappointing reading on retail sales.
The Australian Bureau of Statistics reported sales fell 0.5 percent in May, the biggest drop in a year and confounding forecasts of a steady outcome.
Speaking in Hobart, Stevens noted encouraging signs that low rates were working to support consumer demand, home building, employment and non-mining investment.
"But these signs remain early ones," said Stevens. "There is quite some way to go yet before the episode is completed."
The central bank has already gone almost 11 months without changing rates and continues to predict that the outlook is for more stability ahead.