NZD/USD breaks below 0.5600 due to a technical rebound in US Dollar

• NZD/USD depreciates as the US Dollar Index halts its four-day losing streak on Friday.
• Softer US Retail Sales and underlying inflation data reinforced the odds of the Fed cutting rates twice this year.
• The NZD could regain its ground due to the robust economic data from China.

NZD/USD extends its losses for the second successive day, trading around 0.5590 during the European hours on Friday. The downside of the NZD/USD pair can be attributed to a technical improvement in the US Dollar (USD).

The US Dollar Index (DXY), which tracks the US Dollar's (USD) performance against six major currencies, halts its four-day losing streak, trading near 109.20 at the time of writing. However, the Greenback encountered difficulties as weaker US Retail Sales and underlying inflation data bolstered market expectations that the Fed will reduce interest rates twice this year.

US Retail Sales rose by 0.4% MoM in December, reaching $729.2 billion. This reading was weaker than the market expectations of a 0.6% rise and lower than the previous reading of a 0.8% increase (revised from 0.7%).

Moreover, the US core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose by 3.2% year-over-year (YoY) in December, slightly below both the previous month's 3.3% increase and market forecasts of 3.3%. On a monthly basis, the core CPI grew by 0.2%, compared to a 0.3% rise in the prior month.

Chicago Federal Reserve Bank President Austan Goolsbee stated on Thursday that he has grown increasingly confident over the past several months that the job market is stabilizing at a level resembling full employment, rather than deteriorating into something worse, according to Reuters.

However, the NZD/USD pair faced challenges as the New Zealand Dollar (NZD) gained ground due to the robust economic data from New Zealand's close trading partner China. China's Gross Domestic Product (GDP) grew 5.4% over the year in the fourth quarter of 2024 after reporting a 4.6% expansion in the third quarter. Data beat the market consensus of 5% in the reported period, by a wide margin.

Chinese GDP rate rose 1.6% QoQ in Q4 2024, having increased 0.9% in the previous quarter. This figure matched the expectations of 1.6%. The annual December Retail Sales increased by 3.7% vs. the 3.5% expected and 3.0% prior, while Industrial Production arrived at 6.2% vs. the 5.4% forecast and November's 5.4%.