NZD/USD remains tepid near 0.5600 after the release of Chinese CPI report

• NZD/USD remains subdued following China’s CPI inflation data released on Thursday.
• China's Consumer Price Index rose by 0.1% YoY in December, against the previous 0.2% increase.
• The US Dollar Index maintains its position near 109.00 amid rising hawkish sentiment surrounding the Fed.

NZD/USD continues to lose ground for the third successive session, trading around 0.5600 during the Asian hours on Thursday. The New Zealand Dollar (NZD) remains subdued following Chinese CPI inflation data. Traders are now focused on Friday’s US Nonfarm Payroll (NFP) report, for additional policy direction insights.

China's Consumer Price Index (CPI) increased by 0.1% year-on-year in December, slightly lower than the 0.2% rise in November, matching market expectations. On a month-on-month (MoM) basis, CPI inflation remained unchanged at 0% in December, aligning with estimates, following a 0.6% decline in November.

Additionally, the Kiwi Dollar faces challenges due to the growing likelihood of aggressive monetary easing by the Reserve Bank of New Zealand (RBNZ). The RBNZ is anticipated to reduce the current cash rate of 4.25% by 50 basis points during its February meeting.

The downside risks for the NZD/USD pair are bolstered by the increasing strength of the US Dollar (USD) amid rising hawkish sentiment surrounding the Federal Reserve’s (Fed) policy outlook in 2025. The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, holds its position near 109.00 following strong labor market figures.

US Initial Jobless Claims fell to 201,000 for the week ending January 3, beating the 218,000 consensus. ADP Employment Change rose by 122K in December, though below market expectations of 140K.

Additionally, long-term US bond yields continue climbing on heavy supply; the 10-year rose to 4.73%, while the 30-year approached 4.96% on Wednesday following the Federal Open Market Committee (FOMC) Minutes from the December meeting.

FOMC Minutes showed that Fed policymakers expressed concern about inflation and the impact that President-elect Donald Trump’s policies could have. Fed officials indicated they would be moving more slowly on rate reductions because of the uncertainty. Fed officials penciled the expected cuts in 2025 to two from four in the previous estimate at September’s meeting.