The Canadian dollar strengthened to a seven-week high against its U.S. counterpart on Tuesday as higher oil and stock prices signaled easing investor concerns about an escalating U.S.-China trade row.

Investor optimism grew that a trade dispute between the United States and China might be resolved without greater damage to the global economy after President Xi Jinping promised to open China's economy further and lower import tariffs on products including cars.

"The market is anticipating a pause in the trade war and that has led to a rally in the Canadian dollar and anything else that is trade sensitive," said Adam Button, currency analyst at ForexLive in Montreal. U.S. crude oil futures settled 3.3 per cent higher at US$65.51 a barrel, building on Monday's rally.

At 4 p.m. ET, the Canadian dollar was trading 0.7 per cent higher at $1.2607 to the greenback, or 79.32 U.S. cents. The currency touched its strongest level since Feb. 20 at $1.2588.

Gains for the loonie came after the Bank of Canada said in a report on Monday that Canadian companies remained optimistic about sales growth despite trade uncertainties.

"Everything has gone right for the Canadian dollar since the start of the month and that continued today," Button said.

Last week, stronger-than-expected domestic jobs data and investor optimism over a deal to revamp the North American Free Trade Agreement helped boost the loonie by 0.9 per cent.

Canadian government bond prices were lower across the yield curve, with the two-year down 5 cents to yield 1.823 per cent and the 10-year falling 31 cents to yield 2.181 per cent. The gap between Canada's 10-year yield and its U.S. equivalent narrowed by 2.5 basis points to a spread of -62.0 basis points.

Canadian housing starts slowed slightly in March and building permits dipped in February, but overall residential construction activity remained strong despite a housing correction in some areas, separate reports showed.