The loonie, as the currency is colloquially known, has been trading at its strongest in 14 months, helped by a hawkish turn from the Bank of Canada and an interest rate hike earlier this month.

Markets also see a nearly 80 percent chance of another rate hike in October, which is continuing to provide strength for the Canadian dollar.

The currency has gained some 10 percent since early May, while the spread between yields of Canadian and US 2-year bonds has narrowed sharply since June and now sits at 8.7 basis points, its narrowest in more than a year.

"(In) markets in general, the trend is your friend and momentum is definitely in favor of a stronger Canadian dollar," said Scott Smith, chief market strategist at Viewpoint Investment Partners.

The combination of higher oil prices, solid economic data and a struggling US dollar helped the loonie pierce C$1.25, or 80 US cents, before backing off its session high of C$1.2484.

If the Canadian dollar holds around the 80 US cent mark, that could establish a barrier for further loonie gains, though there is still the potential for the currency to move as high as around C$1.22, said Smith.

The next immediate level analysts are watching is the 2016 high of C$1.2461.

At 4:00 p.m. ET (2000 GMT), the Canadian dollar was trading at C$1.2503 to the greenback, or 79.98 US cents, up 0.3 percent.

Prices for oil, a major Canadian export, rallied after leading OPEC producer Saudi Arabia pledged to cut its exports to help speed up the rebalancing of global supply and demand.

Canada wholesale trade rose more than expected in May, driven by increased sales of motor vehicles and agricultural supplies, data from Statistics Canada showed.

Canadian government bond prices were lower across the maturity curve, with the two-year price down 5.5 Canadian cents to yield 1.278 percent and the benchmark 10-year  falling 34 Canadian cents to yield 1.925 percent.