TORONTO: The Canadian dollar strengthened against its US counterpart on Tuesday as the potential for US economic stimulus and approval of a coronavirus vaccine bolstered investor sentiment, while domestic data showed the economy growing at a record pace.

The loonie was trading 0.5% higher at 1.2935 to the greenback, or 77.31 US cents, having traded in a range of 1.2930 to 1.3006. On Monday, it notched its strongest intraday level in over two years at 1.2919.

"The impact has been mostly around the vaccine," said Andrew Cherry, head of global markets at HSBC Bank Canada. "It is also the news that we could get some more stimulus out of the US Congress. That's what people are really focusing on right now."

The safe-haven US dollar tumbled against a basket of major currencies and Wall Street rallied as hopes that a COVID-19 vaccine would be available soon and better-than-expected factory data from China bolstered bets of a speedy economic recovery.

Also helping sentiment, a bipartisan group of US lawmakers unveiled a $908 billion COVID-19 relief bill.

Canada sends about 75% of its exports to the United States. Canada's economy notched record annualized growth of 40.5% in the third quarter, although analysts cautioned the rebound would stagnate in coming months amid renewed COVID-19 restrictions.

As Canada rolls out additional spending to support its economy during a second wave of the coronavirus, bond investors are giving Ottawa "the benefit of the doubt," expecting a historic budget deficit to be slashed once the pandemic subsides.

Separate data from IHS Markit showed that Canadian manufacturing activity expanded for the fifth straight month in November as output and new orders climbed.

Canadian government bond yields were higher across a steeper curve in sympathy with US Treasuries. The 10-year was up 6.1 basis points at 0.741%.