Last week, the bank revised its forecast to $4.30, on the back of further price drops at the latest GlobalDairyTrade auction on July 15.
With so many factors at play in the international dairy market, it was ''entirely possible'' for prices to rise as much as it was for them to go lower, BNZ economist Doug Steel said.
Fonterra is due to provide an update on its current $5.25 forecast after its board meeting on August 7.
While a downward revision was expected, how much depended on many factors, including the co-operative's view on where prices would track over the coming 12 months, Mr Steel said.
Possible reasons for some price improvement from late this year included the cycle, with the very low prices discouraging production globally and encouraging consumption.
The balance of milk prices to grain prices internationally pointed to supply growth slowing, while the El Nino weather pattern could dent New Zealand production this season.
Drought in California continued to dent milk production in the biggest-producing state in the United States.
Chinese import demand was expected to increase but remained dependent on Chinese milk production, demand and level of inventory, while there was also a chance Russia would remove its current ban, Mr Steel said.
The dairy sector weakness and uncertainty reinforced the bank's view the Reserve Bank would cut the official cash rate by 25 basis points today, while also indicating a bias towards potential follow-up cuts depending how the economy evolved, he said.
