The Canadian dollar hit its strongest close in a week against its U.S. counterpart on Tuesday as U.S. President Donald Trump signed an executive order putting the Keystone XL pipeline back in play.

"That last bastion of dollar bulls got squeezed out today," said Darcy Browne, managing director of foreign exchange sales at CIBC Capital Markets, adding that signs Canada may escape the worst effects of a renegotiation of the NAFTA trade pact also boosted sentiment.

"There are people trying to stay long U.S. dollars on the back of the fundamentals, on the back of the central bank divergence, on the difference of the rate spreads, but it's not parlaying into the price of the currency because it's the political landscape that's shaping the short-term market," he said.

Trump signed orders smoothing the path for Keystone and for the Dakota Access oil pipeline on Tuesday, rolling back key Obama administration environmental actions in favor of expanding energy infrastructure.

If constructed, Keystone would provide oil producers in Canada with a quicker route to send crude to U.S. Gulf Coast refiners. Oil is one of Canada's major exports.

The Canadian dollar settled at $1.3161 to the greenback, or 75.98 U.S. cents, stronger than Monday's close of $1.3267, or 75.37 U.S. cents, and its strongest settlement since Jan. 17.

It has moved sharply but remained within a $1.30 to $1.36 range since September.

The U.S. dollar recovered from a dip on fears that Trump's focus on protectionism over fiscal stimulus suggested his administration might be content to gain a competitive advantage through a weaker currency.

The head of a business advisory council to Trump played down on Monday the risk to Canada from any changes to the North American Free Trade Agreement. Canadian officials are convinced Mexico will suffer the most damage from changes to the trade pact, sources said.

Trump pulled out of the Trans-Pacific Partnership on Monday, which Canada said means it cannot proceed.

Meanwhile a planned EU-Canada free-trade deal moved closer to reality on Tuesday after a key committee advised the European Parliament to give its backing after months of protests and heated debate.

Canadian government bond prices were lower across the yield curve, with the two-year price down 8 cents to yield 0.788 per cent and the benchmark 10-year declining 66 cents to yield 1.759 per cent.

Yields had dipped on Monday as Trump's tough stance on trade spurred safe-haven demand for bonds.