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A Canadian dollar or loonie.Jonathan Hayward/The Canadian Press

The Canadian dollar rose Thursday, pushed up by rising gold prices amid caution from the Bank of Canada, unrest in Iraq and fears that oil supplies may soon be disrupted.

The loonie gained 0.19 of a cent to 92.21 cents US.

The Bank of Canada continued to sound the alarm about the country's housing market, adding the risk of failures in the Chinese financial system and higher long-term interest rates from the U.S. as possible triggers for a destructive crash.

The central bank's latest semi-annual review of the financial system concedes that the probability of a sharp housing correction, particularly in prices, is small – but the consequences would be large.

In particular, the bank worries that although the market appears to be headed for a soft landing, certain hot spots like Toronto's condominium market continue to see prices rise.

The markets were also boosted after several large Canadian banks recently lowered their five-year fixed mortgage rates below three per cent.

Meanwhile, in commodities, the July crude contract advanced $1.85 to US$106.25 barrel as an Al Qaeda-inspired group that captured two key cities in Iraq earlier this week vowed Thursday to march on to Baghdad.

One of the two cities that were invaded, Mosul, lies in an area that is a major gateway for Iraqi oil. While the loss of the city has no immediate effect on oil exports, now at over 3 million barrels a day, it adds to concerns over security and the country's plans to expand oil production.

The instability in Iraq comes as the Organization for Petroleum Exporting Countries met in Vienna and agreed to keep their output target unchanged at 30 million barrels a day.

Traders interpreted the decision as recognition within OPEC that most members would not be able to substantially increase output in the short-term even if the world's demand for crude increases.

Scotiabank's Camilla Sutton cautioned that rising oil prices do not always sustain a higher Canadian dollar.

"Drivers of a vaguely strong CAD have been rising oil prices – however upward oil prices on the back of geopolitical risks have traditionally been less supportive of a higher CAD than rising oil prices on the back of strong demand," Sutton, chief FX strategist, managing director of Scotiabank Global Banking and Markets, wrote in a note.

A report from the U.S. Energy Department released late Wednesday also showed signs that oil supplies may be low. The department says supplies fell by 2.6 million barrels in the week ended June 6, more than double the 1.2 million barrels analysts expected.

In other commodities, August gold bullion gained $10.60 to US$1,271.80 an ounce, while July copper declined two cents to US$3.02 a pound.