The kiwi plumbed a session low of $0.8138 after data showed annual inflation slowed to just 0.8 percent in the third quarter, less than forecasts for 1.1 percent and below the RBNZ's target band of 1 to 3pc.
New Zealand government bonds rose on the back of the data, nudging yields 4.5 basis points lower at the short end of the curve.
"The number was below consensus at the margin it increases the chance that the RBNZ will loosen policy over the coming months," said Hamish Pepper, currency strategist at Barclays Capital in Singapore.
He added that short-term interest rate markets were now pricing in a slight chance of a cut at the RBNZ's next policy announcement next week, and more than a 50 percent chance of a chop at its meeting in December.
"For a long time economists were fairly confident that policy in New Zealand would stay at 2.5 percent, but recently the dovish rhetoric from the RBNZ along with the weak data from this morning are prompting people to think again."
The figures knocked the kiwi lower versus most major currencies, although it managed to claw back much of its losses by late local trade.
Versus its US counterpart, the kiwi traded at $0.8160 , little changed on the day. Support lay around $0.8135, the 50 percent retracement of the kiwi's sharp rally in September.
The vast majority of economists still believe the RBNZ's next moves on rates will be a rise, but most are not expecting such a move until the second half of 2013, and some economists pushed back their outlooks following the CPI reading.
Pepper at BarCap added that the kiwi was unlikely to head significantly lower ahead of the RBNZ's policy statement due next week, as many in the market will be waiting to see how incoming Governor Graeme Wheeler will assess Tuesday's data.
The kiwi also underperformed its Aussie counterpart, which edged up to NZ$1.2570, having earlier hit a 2-1/2-week high of NZ$1.2599.
Against the greenback, the Aussie stood at $1.0266 versus $1.0251 late in New York, nearing last Thursday's high of $1.0294 -- a level likely to provide initial resistance.
There was muted reaction to the minutes of Reserve Bank of Australia's (RBA) October policy meeting, which contained little new information.
They merely re-stated that the bank cut rates as a pullback in mining investment and a darker global outlook meant domestic growth would likely be lower than expected in the year ahead.
The minutes also gave no guidance on the prospect of more easing, though RBA Governor Glenn Stevens last week did note that there was room for stimulus if needed.
"The RBA did not want to send a message in today's minutes that another cut is imminent, but their increased concern for the domestic outlook is unlikely to fade with just one rate cut," said Spiros Papadopoulos, senior economist markets at National Australia Bank.
"A 25bps cut on Melbourne Cup Day (Nov. 6) is a good bet, with the risk of more next year if the outlook continues to deteriorate."
Interbank futures imply a two-in-three chance of a cut in November.
The market sees the cash rate falling to record lows around 2.25-2.50 percent on a 12-month horizon.
The minutes noted that the Aussie dollar remained high historically despite lower commodity prices and a dimmer global outlook.
Australian government bond futures were a touch softer, with the three-year contract down 0.03 points at 97.630, and the 10-year contract 0.01 points lower at 97.065.