The New Zealand dollar fell after prices of dairy products dropped more than some expected in the GlobalDairyTrade auction overnight and as the market awaits the US Federal Reserve's latest review of monetary policy.

The kiwi fell to 73.04 US cents as at 5pm in Wellington from 73.55 cents at 3am before the dairy auction result, and 73.79 cents late yesterday. The trade-weighted index declined to 77.23 from 78.09 yesterday.

Whole milk powder, the largest product by volume sold on the GDT platform, fell 9.6 percent amid signs price pressures are abating as drought conditions in some parts of New Zealand fade and supply rises. Weaker auction prices could spur Fonterra Cooperative Group to lower its forecast milk payout, meaning dairy farmers would have less cash to push into the broader economy. Meanwhile, the Fed is due tomorrow morning New Zealand time to give its latest take on the world's biggest economy, where the labour market has been growing without fuelling wages.

"Whereas in the previous couple of auctions there was a drought premium built into prices, that's been yanked out," said Imre Speizer, strategist at Westpac Banking Corp. "The supply story probably argues for a lower payout."

The Federal Reserve decision on interest rates, scheduled for release at 7am New Zealand time tomorrow, is widely expected to remove a reference to being "patient" from its statement, paving the way for future interest rate hikes.

"They've got to drop the 'patient' word, so everything is on the table," Speizer said. Still, the Fed may actually become "less precise" in its language in the latest statement, saying that "from here, it's going to be very much data-dependen. If worse, then it (a rate hike) gets pushed out."

Also out tomorrow is gross domestic product data for the fourth quarter, which is expected to show a quarterly gain of 0.7 percent for an annual rate of 3.2 percent. That would mark a decline from the third quarter's 1 percent expansion, which some economists say was exaggerated by a jump in mining activity and dairy production.

The New Zealand dollar dropped to 95.75 Australian cents from 96.70 cents yesterday, and fell to 68.84 euro cents from 69.85 cents. It dropped to 49.46 British pence from 49.79 pence and fell to 88.61 yen from 89.54 yen.