The Canadian dollar firmed on Thursday against its U.S. counterpart, extending sharp gains made in the previous session as domestic bond yields rose in anticipation of additional rate increases from the Bank of Canada.

The loonie surged to its highest in more than a year on Wednesday, scoring its biggest one-day gain since March, after the central bank raised interest rates for the first time since 2010.

Chances of another interest rate hike by October have increased to nearly 65 per cent from roughly one-in-two before the rate decision, data from the overnight index swaps market showed.

The U.S. dollar also rose against its peers, bouncing from losses in the previous session, as data showed the number of Americans filing for unemployment benefits fell last week and producer prices unexpectedly rose in June.

The data, which came a day after Federal Reserve chair Janet Yellen signaled a less hawkish stance than anticipated, was expected to keep the Fed on track for a third interest rate increase this year.

"The market correctly, I think, reevaluated her [Yellen's] dovish stance from yesterday," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. "In light of that, you could say the fact that the Canadian dollar could hold on to its gains is a bit of an accomplishment."

At 4:00 p.m. ET, the Canadian dollar was trading at $1.2723 to the greenback, or 78.60 cents US, up 0.2 per cent.

The currency traded in a range of $1.2722 to $1.2771. It touched on Wednesday its strongest since June 2016 at 1.2681.

Prices of oil, one of Canada's major exports, rose as robust Chinese demand was seen helping to drain the global supply glut. U.S. crude was up 1.23 per cent to US$46.05 a barrel.

New housing prices in Canada climbed 0.7 per cent in May, more than economists' forecasts for a 0.3-per-cent increase, as prices continued to rise in the hot markets of Toronto and Vancouver, Statistics Canada said.

Canadian government bond prices were lower across the yield curve, with the two-year down 3.5 cents to yield 1.214 per cent and the 10-year falling 30 cents to yield 1.912 per cent.

The two-year yield touched its highest intraday level since September 2013 at 1.257, while the 10-year touched 1.948 per cent, a level not reached since December 2014.