The Canadian dollar extended a 14-month high against its U.S. counterpart on Thursday as oil prices rose and the greenback fell against a basket of major currencies, with analysts looking to Friday's domestic data for clues on the rally's next move.

The loonie has strengthened steadily since June, when the Bank of Canada took a more hawkish turn, with the move getting fresh legs after the central bank hiked interest rates last week.

At the time, the central bank said it needed to look through soft inflation data and would wait for more economic data before committing to its next move, making June inflation and May retail sales data due out on Friday key to the short-term trend.

"The Canadian dollar is riding high, but it won't last forever, and any signs of weakness in inflation and in consumer spending could cause a sharp reversal," said Adam Button, currency analyst at ForexLive in Montreal.

At 4 p.m. ET, the Canadian dollar was trading at $1.2588 to the greenback, or 79.44 cents US, up 0.1 per cent.

The currency traded in a range of $1.2541, its strongest since early May 2016, and $1.2640.

Button said two strong prints on Friday could push the currency to its strongest since mid-2015, while a negative month-on-month inflation number could push it back up toward $1.28.

The U.S. dollar gave up earlier gains after a regional gauge of business conditions fell to an eight-month low and as comments by European Central Bank President Mario Draghi boosted the euro.

Prices for oil, a major Canadian export, settled lower in choppy trading as nagging worries about abundant global crude supplies sank prices after an early rally boosted Brent above US$50 per barrel for the first time since June 7.

Canadian government bond prices were higher across the yield curve, with the two-year up 2.4 cents to yield 1.242 per cent and the 10-year rising 14 cents to yield 1.882 per cent.

Last week, the 10-year yield touched its highest since December 2014 at 1.948 per cent.