The New Zealand dollar fell to a two-week low as a weak outlook for inflation and low dairy prices stoked speculation of further interest rate cuts.

The kiwi touched 65.43 US cents, and was trading at 65.57 cents at 8am in Wellington, from 65.98 cents at 5pm yesterday. The trade-weighted index fell to 71.41 from 71.66 yesterday.

The New Zealand dollar dropped sharply yesterday afternoon following the release of a Reserve Bank survey which showed firms' inflation expectations sank to the lowest level in more than two decades, stoking speculation the central bank may have to cut interest rates. Overnight, prices declined for a fourth consecutive time at the GlobalDairyTrade auction. Still, the 2.8 percent slide in prices for New Zealand's largest commodity export wasn't as bad as the 5 to 10 percent drop some had anticipated.

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"The NZD/USD has been the weakest performer over the past 24 hours," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "It fell sharply yesterday afternoon following the release of the RBNZ's latest inflation expectations survey. Downward momentum continued overnight, assisted by another fall in average prices at this morning's GDT dairy price auction.


"While the price fall was not as bad as we feared, it will be of little solace to New Zealand's dairy industry, with prices still at very low level. Prices have now fallen at each of the four auctions in 2016, to be 33 percent lower than a year ago," she said.

BNZ said the New Zealand dollar has near term support just above 65 US cents.

Tonight, the US Federal Reserve releases the minutes to its January meeting, although the BNZ's Martin said they are unlikely to be a major market mover.

"These are likely seen as somewhat obsolete, given subsequent significant market moves and release of US payrolls data that will play into current Fed thinking," she said.

The futures market is currently pricing in about 30 basis points of Fed interest rate hikes over the next two years. That's a pullback from December, when Fed officials indicated they expected to hike rates four times this year.

The New Zealand dollar slipped to 58.84 euro cents from 59.16 cents yesterday, fell to 4.2721 yuan from 4.2979 yuan, and declined to 74.68 yen from 75.78 yen. It gained to 92.44 Australian cents from 92.07 cents yesterday, and advanced to 45.89 British pence from 45.71 pence.