NZD/USD softens to near 0.5600 amid China deflation pressure

• NZD/USD weakens to near 0.5600 in Friday's early Asian session. 
• The Fed plans to slow the pace of interest rate cuts this year, lifting the USD. 
• Deflation risk in China weighs on the Kiwi. 

The NZD/USD pair remains weak to around 0.5600 during the early Asian session on Friday. The firmer Greenback and deflation concerns in China weigh on the New Zealand Dollar (NZD). The US December employment data will be the highlights later on Friday, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. 

The US Federal Reserve (Fed) officials adopted a cautious stance this year due to inflation risks and uncertainty under the incoming Trump administration, which supports the US Dollar (USD). Several Fed policymakers suggested that the US central bank will move more slowly on rate cuts this year, after cutting at each of its last three meetings in 2024.

The US Bureau of Labor Statistics (BLS) will publish the employment report for December later in the day. Economists expect 160,000 new jobs for December, while the unemployment rate is expected to remain at 4.2% during the same report period. The Average Hourly Earnings are projected to rise by 0.3% MoM in December. Any signs of a strong labor market, steady job growth, and rising incomes could boost the USD and act as a headwind for NZD/USD. 

Deflationary pressures in China came despite months of effort by policymakers to stimulate demand. The country's Consumer Price Index (CPI) increased 0.1% YoY in December, while the Producer Price Index (PPI) declined 2.3% YoY during the same period, sliding for the 27th straight month. This, in turn, exerts some selling pressure on the Kiwi, as China is a major trading partner to New Zealand.