The USD/CAD pair hovers near a weekly high of around 1.3540 in the early New York session on Tuesday. The Loonie asset aims to extend the upside, being supported by a risk-off market mood. The US Dollar Index (DXY) recovered to a near 11-week high of 104.50 amid hopes that the Federal Reserve (Fed) will not rush to reduce the benchmark interest rates. The economic indicators released in January indicate that the United States economy is delivering a strong performance. After robust labor growth and a significant recovery in the Manufacturing PMI, the Services PMI also outperformed expectations by a significant margin. The Services PMI representing the non-manufacturing sector, which accounts for two-thirds of the US economy, rose robustly to 53.4 against expectations of 52.0 and the prior reading of 50.5.
A strong performance by the US economy is allowing Fed policymakers to advocate for keeping interest rates in a restricted trajectory. Fed policymakers have cautioned that premature rate cuts could uplift overall aggregate demand, eventually prompting price pressures. Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday that the central bank could take some time to decide on rate cuts due to lower risks to economic growth. This week, the Canadian Dollar will be guided by the employment data for January, which will be published on Friday. According to the expectations, Canadian employers recruited 15K workers against weak hiring of 0.1K in December. The Unemployment Rate is increasing to 5.9% against the prior reading of 5.8%. Downbeat labor market conditions would uplift hopes of early rate cuts by the Bank of Canada (BoC).