TORONTO: The Canadian dollar strengthened to a seven-week high against its US counterpart on Wednesday as rising geopolitical tensions boosted the price of oil to its highest level in more than three years.

Oil, one of Canada's major exports, climbed after Saudi Arabia said it intercepted missiles over Riyadh and US President Donald Trump warned Russia of imminent military action in Syria. US crude oil futures settled 2 percent higher at $66.82 a barrel.

"It all adds up to a pretty positive picture on the loonie," said Ranko Berich, head of market analysis at Monex Canada and Monex Europe.

In addition to higher oil prices, the potential for further Bank of Canada interest rate hikes later this year has also been supportive of the loonie, Berich said.

The central bank has raised its benchmark interest rate three times since July to 1.25 percent. Money markets see two more rate hikes this year.

At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading 0.2 percent higher at C$1.2571 to the greenback, or 79.55 US cents.

The currency, which has benefited recently from increased optimism over a deal to revamp the North American Free Trade Agreement, touched its strongest level since Feb. 19 at C$1.2545.

Gains for the loonie have come after data from the US Commodity Futures Trading Commission and Reuters calculations showed on Friday that speculators have raised bearish bets on the currency to the highest since July.

"Looking at the price action it's quite possible some of those shorts got shaken out pretty quickly," Berich said.

Canadian government bond prices were lower across the yield curve, with the two-year down 10 Canadian cents to yield 1.853 percent and the 10 years falling 46 Canadian cents to yield 2.201 percent.

The gap between the 10-year yield and its US equivalent narrowed by 8.1 basis points to a spread of -57.5 basis points, its narrowest since Feb. 20, as Treasuries were boosted by demand for safe-haven assets.