TORONTO: The Canadian dollar strengthened to its highest in more than 2-1/2 years against its US counterpart on Tuesday as progress toward US government stimulus overshadowed the Bank of Canada's concern about a stronger currency.

The loonie was trading 0.6% higher at 1.2689 to the greenback, or 78.81 US cents, having touched its strongest intraday level since April 2018 at 1.2688.

"It's all about stimulus in the US," said Adam Button, chief currency analyst at ForexLive.

Wall Street surged as US House Speaker Nancy Pelosi invited top congressional leaders to meet in an effort to finalize a massive government spending deal and reach an agreement on a new coronavirus relief package.

Canada sends about 75% of its exports to the United States, including oil. US crude prices settled 1.3% higher at $47.62 a barrel as optimism over the rollout of coronavirus vaccines balanced out tighter lockdowns in Europe and forecasts of a slower demand recovery.

Canada's recovery from the pandemic is at a very difficult stage, as rising COVID-19 infections dampen growth in the near term and "could even deepen the economic hole," Bank of Canada Governor Tiff Macklem said, adding that a stronger loonie was hurting Canada's exports in the crucial US market.

The Bank of Canada is "engaging in some light jawboning" on the Canadian dollar, which is not a concern for the market unless the central bank is prepared to act, Button said.

Canadian housing starts rose 14.4% in November compared with the previous month, beating analyst expectations, data from the national housing agency showed.

Separate data from Statistics Canada showed factory sales rose 0.3% in October from September.

Canadian government bond yields were higher across the curve in sympathy with US Treasuries. The 10-year rose 1.4 basis points to 0.728%.