By Ian Chua and Gyles Beckford
SYDNEY/WELLINGTON, July 3 (Reuters) - The Australian dollar fell below 91 U.S. cents for the first time since September 2010 on Wednesday with markets interpreting as dovish comments from the head of the Reserve Bank of Australia.
The Aussie fell as low as $0.9094, with selling accelerating after the break of Monday's trough of $0.9110. It was last down 0.5 percent on the day at $0.9111.
Traders said investors latched onto what appeared to be a throw-away remark from RBA Governor Glenn Stevens, who said the board took a long time deliberating Tuesday's decision to keep the cash rate unchanged at a record low 2.75 percent.
That was taken to mean that the decision not to cut was closer than the market thought, prompting investors to quickly price in a 60 percent chance of an easing in August, up from around 40 percent earlier.
Stevens also said the cooling of Australia's long-run mining investment boom will pose a significant challenge, adding that no one can guarantee that the non-resources sectors will strengthen on cue, and by just the right amount.
'The governor was questioning the central bank's ability to be able to fine tune the economy and suggesting a transition from mining to non-mining led growth might be a little bumpy,' said Andrew Salter, FX strategist at ANZ.
'He was also implying the exchange rate needed to do a lot of work in the transition, hence the exchange rate is weaker.'
Salter, who has a year-end target of $0.9200, said the Australian dollar is roughly at fair value at the moment, based on where commodity prices and interest rates expectations are.
Stevens comments came after a mixed batch of data that showed a disappointing 0.1 percent rise in retail sales, but a strong increase in exports that helped push the country's trade surplus to A$670 million.
Australia also boasted record exports to China in May thanks to iron ore and coal, a slave to fears of a slowdown in demand from the Asian giant.
The Aussie also lost ground against the yen, falling 0.3 percent to 91.69, while the euro gained 0.4 percent to A$1.4237.
Against its New Zealand peer, the Aussie fell to a fresh 4-1/2 year low of NZ$1.1737.
Heightened rate cut expectations saw Australia's yield curve steepen as the short-end outperformed. The three-year bond futures rose 4 ticks to 97.230, while the 10-year futures eased 1 tick to 96.240.
KIWI OUTPERFORMS AUSSIE
Tracking the Aussie, the New Zealand dollar pulled back from the session high to trade 0.2 percent down on the day at $0.7735.
A bearish tone remains in the near term at least, with support for the kiwi seen at $0.7725 and then more substantially at $0.7683, with resistance at $0.7790 ahead of $0.7831.
The kiwi was unmoved by the dairy giant Fonterra's latest auction which showed a 0.7 percent rise in prices, the second consecutive lift. Prices for the country's biggest export commodity are up 69 percent on a year ago.
'We continue to see solid New Zealand commodity prices helping to fortify the NZ dollar against a broadly stronger U.S. dollar in the year ahead,' said BNZ strategist Mike Jones.
New Zealand government bonds had a solid offered tone, pushing yields as much as 7 basis points higher.
(Editing by Wayne Cole) Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX
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