The loonie was trading 0.8% higher at 1.2670 to the greenback, or 78.93 U.S. cents, its biggest gain since June 1.
The currency, which was pressured on Monday by a sell-off on Wall Street, touched its strongest intraday level since April 2018 at 1.2656.
"The Canadian dollar took back all the losses and more from Monday's session," said Michael Goshko, corporate risk manager at Western Union Business Solutions. The move was fueled by a "surge in oil prices, a strong move higher in broad commodities and a bounce back rally in equities."
U.S. crude oil futures settled 4.9% higher at $49.93 a barrel after news that Saudi Arabia will make voluntary cuts to its oil output.
Wall Street shares gained in choppy trading, as investors took advantage of the previous session's slump to buy them back, ahead of the outcome of pivotal U.S. Senate runoff elections in Georgia.
The U.S. dollar lost ground against a basket of major currencies after China lifted its official yuan exchange rate by its highest margin since it abandoned a dollar peg in 2005.
Canadian Prime Minister Justin Trudeau said the whole nation was frustrated by how slowly provinces are vaccinating people against the coronavirus and promised Ottawa would help speed the pace of inoculations.
Ontario has the fiscal capacity to support its economy during the coronavirus pandemic, Peter Bethlenfalvy, the new finance minister of Canada's most-populous province, told Reuters.
Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries. The 10-year rose 3.4 basis points to 0.711%.
(Reporting by Fergal Smith; Editing by Bernadette Baum and Peter Cooney)
By Fergal Smith
