The GDT price index was down 1.2 per cent, following 11 consecutive rises.

But pundits saw the fall as a minor adjustment that was unlikely to affect the overall positive market sentiment.

Tuesday night's fall was led by butter prices (down 3.2pc), whole milk powder prices (down 2.1pc) and anhydrous milk fat (down 1.4pc).

But the cheddar price index was strong (up 15.2pc), while skim milk powder prices recorded a slight rise (up 0.5pc).

New Zealand bank ASB senior rural economist Nathan Penny said the result was expected.

Despite the fall in fat prices, Mr Penny said these still remained high, with butter prices up 38pc and AMF up 24pc since the start of the year. "We suspect that the overall price fall reflects weaker Chinese demand, resulting from the recent fall in the Chinese currency," Mr Penny said.

The Chinese yen has fallen 2pc against the US dollar since the last auction, reflecting the fall in the WMP price.

Westpac New Zealand senior economist Anne Boniface said demand from China appeared to have remained firm in the past month.

"Ongoing firm demand from China will be key in determining whether dairy prices are able to remain near these levels," she said.

Both economists are optimistic about prices for the season ahead. Mr Penny said at this early stage, he expected NZ production levels to be modest next season.

"In particular, spring production is unlikely to match the record production levels recorded last year," he said.

"All up, we anticipate production for the 2019/20 season will be unchanged on the previous year."

This and soft production in other dairy-exporting regions, combined with firm demand, pointed to dairy prices moving towards a cyclical peak in 2019.

Ms Boniface said if its forecast NZ farmgate price was in the right ballpark, the 2019/20 NZ season was shaping up as a good one.