The New Zealand dollar fell, reversing yesterday's gains, as prices for dairy products and other commodities declined and traders looked ahead to tomorrow's policy statement from the Reserve Bank.

The kiwi dropped to 68.97 US cents as at 8am in Wellington from 69.32 cents late yesterday. The trade-weighted index slipped to 73.34 from 73.52.

See live rates for the NZ-US $ below. Click for more information:NzForex Foreign Exchange Transfers

Dairy product prices fell 3.5 per cent in the GDT auction, with whole milk powder falling 5.5 per cent to US$2,852 a tonne, stoking speculation that Fonterra Cooperative Group may have to lower its forecast 2017/18 payout, which it reiterated last week at $6.75 per kilogram of milk solids plus earnings per share in a range of 45-to-55 cents.

The CRB Index of 19 commonly traded commodities fell 0.4 per cent from a nine-month high. Meanwhile, tomorrow's monetary policy statement is expected to include revised economic forecasts with the TWI well below the level projected in its last MPS.


"We downgraded our 2017/18 milk price forecast to $6.25-$6.50/kgMS last month, and at face value, today's result warrants some further caution," said Philip Borkin, senior economist at ANZ Bank New Zealand, in a note.

"However, with the NZD/USD down around 4 per cent since the mid-October auction, it shouldn't be forgotten that there are some other key factors supporting the local farm-gate returns."

He expects the Reserve Bank "to still be somewhat cautious tomorrow, which could perhaps disappoint a market that is arguably looking for a slightly more hawkish tone," he said.

The kiwi had gained yesterday after Finance Minister Grant Robertson and acting Reserve Bank governor Grant Spencer re-signed the existing policy targets agreement and Robertson said a two-phase review is planned that will give the bank a dual mandate of employment and inflation and will also introduce a committee-making decision model in the initial phase.

Economists are expecting the RBNZ to keep rates on hold at record low 1.75 per cent.

However, there is some risk it could be more hawkish in its forecasts given the sharply weaker New Zealand dollar, emerging signs of inflation and the new government's fiscal policy, which will also generate inflation.

Traders will also be keeping an eye on the opening of the parliament, with the governor general's "speech from the throne" possibly containing clues to the government's policy programme.

The kiwi fell to 4.5789 yuan from 4.5915 yuan and declined to 52.42 British pence from 52.60 pence. It fell to 59.56 euro cents from 59.70 cents and dropped to 78.58 yen from 78.97 yen. It traded at 90.29 Australian cents from 90.16 cents yesterday.