The Canadian dollar hit a two-week high against its US counterpart on Friday as oil prices rose and after a surprise expansion of the domestic economy in April raised expectations for a Bank of Canada interest rate hike next month.
Canada's economy shrugged off the effects of bad weather to post growth of 0.1 percent in April, and business optimism rose to near record levels in the second quarter.
"Good enough data, the bank should hike," said Greg Anderson, global head of foreign exchange strategy in New York at BMO Capital Markets.
Chances of an interest rate hike at the central bank's July 11 announcement jumped to about 80 percent from 67 percent before the data for gross domestic product, the overnight index swaps market indicated.
The price of oil, one of Canada's major exports, rose to a 3-1/2-year high as US sanctions against Iran threatened to remove a substantial volume of crude oil from world markets at a time of rising global demand.
US crude oil futures settled nearly 1 percent higher at $74.15 a barrel.
At 5 p.m. EDT (2100 GMT), the Canadian dollar was trading 0.9 percent higher at C$1.3138 to the greenback, or 76.12 US cents. The currency touched its strongest level since June 15 at C$1.3131.
Still, the loonie fell 1.8 percent for the second quarter, pressured by a trade dispute between Canada and the United States and slow-moving talks to revamp the North American Free Trade Agreement.
Speculators have raised bearish bets on the Canadian dollar, data from the US Commodity Futures Trading Commission and Reuters calculations showed. As of June 26, net short positions jumped to 32,799 contracts from 14,014 a week earlier.
Canadian government bond prices were lower across much of a flatter yield curve, with the 10-year falling 29 Canadian cents to yield 2.167 percent. The 10-year yield touched its highest intraday level since June 20 at 2.173 percent.