NZD/USD tumbles below 0.5600 on bullish US Dollar, all eyes on US NFP data

• NZD/USD declines to around 0.5585 in Friday's early European session, down 0.25% on the day. 
• The prospect of a slower pace of Fed rate cuts could boost the USD against the NZD.
• The US December Nonfarm Payrolls data will be closely watched on Friday.

The NZD/USD pair attracts some sellers to around 0.5585 during the early European trading hours on Friday. The pair remains under selling pressure amid the strengthening US Dollar (USD) due to heightened expectations that the US Federal Reserve (Fed) will move forward cautiously with future rate cuts. All eyes will be on the US Nonfarm Payrolls (NFP) report for December, which is due later on Friday. 

The US Dollar index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, is set for a sixth consecutive weekly gain and currently trades near 103.35. The firmer Greenback is underpinned by rising bond yields and expectations of another strong US economic data. 

The Fed decided to lower its policy rate of interest a full percentage point in the final three meetings of 2024 but is expected to leave the rate steady in the current 4.25% to 4.5% range at the upcoming January policy meeting. According to the CME FedWatch tool, traders have priced in nearly a 93.1% odds that the Fed will pause the rate cut this month. 

On the other hand, the dovish bets of the Reserve Bank of New Zealand (RBNZ) and the deflationary pressures in China could drag the Kiwi lower. Data released on Thursday showed China's Consumer Price Index (CPI) remained close to flat in December, stoking deflation worries. Any signs of weakness in China's economy are likely to undermine the New Zealand Dollar (NZD), as China is a major trading partner to New Zealand.