On Tuesday, the loonie touched $1.3415, its weakest point in nearly two weeks.Reuters
The Canadian dollar strengthened against its U.S. counterpart on Wednesday as the price of oil, one of Canada's major exports, rose for the second day in a row.
U.S. crude inventories grew less than expected, while Libyan supply disruptions, and expectations that an output cut led by the Organization of Petroleum Exporting Countries would be extended all helped send oil prices higher.
U.S. crude futures settled up $1.14, or 2.4 per cent, at $49.51 a barrel.
The loonie was able to climb against the greenback even as the U.S. dollar was stronger against a basket of major currencies after a Reuters report that European Central Bank policymakers were wary of making any changes to their policy message in April pressured the euro.
"We're seeing oil prices really rally after the better-than-expected inventories report this morning so that's been the main driver of the Canadian dollar," said Scott Smith, chief market strategist at Viewpoint Investment Partners in Calgary.
The Canadian dollar settled at $1.3333 to the greenback, or 75 U.S. cents, stronger than Tuesday's close of $1.3383, or 74.72 U.S. cents.
The currency's strongest level of the session was $1.3323, while its weakest level was $1.3401. The day's strength marked a bounce-back from Tuesday when it touched $1.3415, its weakest in nearly two weeks.
The steady bias on Wednesday for the currency came one day after the Bank of Canada stuck to its cautious tone. The nation's economy would tip into recession if interest rates were raised today, said Stephen Poloz, the central bank's governor.
Still, economists expect Canada's gross domestic product to show 0.3 per cent growth for January, which could set the stage for a stronger performance in the first quarter than initially expected.
The January GDP data is due for release on Friday.
Canadian government bond prices were higher across the yield curve, with the two-year up 3 cents to yield 0.725 per cent and the 10-year rising 29 cents to yield 1.593 per cent.
On Tuesday, the two-year yield hit its lowest in nearly seven weeks at 0.719 per cent.