It's shedding leaves now because peaches are not evergreen - even in Arizona!! The discoloration is perfectly normal for this process and the tree should bud out and re-leaf in spring with normal looking foliage.

I don't see any "black nodules" on the branches - only the presence of latent buds. Can you provide photos of these nodules so we can see more clearly?

Thanks for the info Gardengal48. That is quite a relief! Here is a picture of the nodules. Now, I am thinking these might be the latent buds you were referring to.

So what would you recommend our water schedule should be over the winter.

Again thanks so much for your help, we really appreciate it!

Dormant trees don't need much water. At a minimum you should cut your watering in half. Give that guy a heavy layer of mulch, 4"-6" and you probably won't need to water it again until it starts to leaf out.

Don't water by the gallon; that's way too little. Flood the basin until the entire root zone is soaked (could be 50 gallons.) Then don't water again until it's dry once again. Your tree looks parched IMO.