NZD/USD capped on poor China Caixin Services PMI

Following poor China data, NZD/USD is perched at the highs of the bullish cycle following a series of daily bullish closes since mid-November. The price has rallied to a high of 0.6417 following a move towards the August 0.6468 high. The US Dollar has been the driver with a switch in sentiment that has been supportive of risk appetite and the high beta complex.

Reuters reported that China's services activity shrank to six-month lows in November as widening COVID containment measures weighed on demand and operations, a private-sector business survey showed on Monday, pointing to a further hit to economic growth. The Caixin/S&P Global services purchasing managers' index (PMI) fell to 46.7 from 48.4, marking the third monthly contraction in a row. The 50-point index mark separates growth from contraction on a monthly basis.

Meanwhile, a surprisingly strong US jobs report weighed on the greenback and fell to test the 104.50s.  Even though the US Nonfarm Payrolls data showed that stronger-than-expected hiring reflected the tightness of the labour market, investors faded the US dollar as Fed officials spoke dovish on the outlook. Average hourly earnings arrived at 0.6%, well above expectations for a 0.3% gain, and the participation rate also declined to 62.1%.

Analysts at ANZ bank explained that ''we start the week with the USD on its knees despite data suggesting that even if the Fed hike by ‘only’ 50bp next week (not a small hike; just not a gigantic one!) they may lift their terminal rate projection above 5%. If that occurs, the question we’re pondering is; how will the USD fare? We may be shaping up for an epic battle between the “recessionists” and the “rate-watchers”, all of which portends USD volatility.''

The analysts see NZD fair value at ~0.65; ''that suggests it can maintain its strength, but it may be a bumpy ride. The next major technical target is 0.6450 (the Aug high).''

NZD/USD technical analysis 

The NZD is riding the dynamic support into resistance but a correction could be on the cards. The Fibonacci scale sees the prospects of a move towards the 61.8% ratio near 0.6281.