The New Zealand dollar weakened on Tuesday after a sharp fall in dairy prices at the latest GlobalDairyTrade auction. The average winning price slumped 10.8%, with whole milk powder, the most important product for New Zealand, falling 13.4%.

The New Zealand dollar fell to US$0.7525 from around US$0.7580 before the auction results were released.

Dairy prices are a key influence on the New Zealand economy, and the fall will be a cause for concern for the Reserve Bank of New Zealand, which is already worried about low inflation.

“This is a terrible result,” said Westpac senior economist Satish Ranchhod. “It reinforces our view that the RBNZ will need to cut interest rates in the coming months.”

The fall in dairy prices is due to a combination of factors, including increased supply from Europe and weaker demand from China.

The GlobalDairyTrade auction is a twice-monthly event where dairy products are sold to buyers around the world.