By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged up against its broadly stronger U.S. counterpart on Tuesday as oil prices climbed to their highest level since 2014 and investors bet that the Bank of Canada would raise interest rates as soon as next week.

The loonie was trading 0.1% higher at 1.2503 to the greenback, or 79.98 U.S. cents, after trading in a range of 1.2487 to 1.2563. It was the only G10 currency to gain ground against the greenback.

The move higher in crude prices "is supporting some oil proxies in the FX space," said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.

Canada is a major producer of oil, which settled 1.9% higher at $85.43 a barrel as possible supply disruption after attacks in the Middle East added to an already tight supply outlook.

The U.S. dollar was bolstered by a jump in U.S. Treasury yields as traders prepared for the Federal Reserve to be more aggressive in tackling unabated inflation.

Canadian inflation data for December is due on Wednesday, which could offer clues on the Bank of Canada interest rate outlook.

Canadian restrictions to tackle COVID-19 will likely come at a cost of slower economic growth at the start of the year than in the United States, but that has not stopped investors from raising bets the BoC will hike interest rates at the Jan. 26 policy announcement.

Data from the overnight index swaps market shows the chances of a hike next week at nearly 70%.

Canadian housing starts fell 22% in December compared with the previous month as both multiple urban and single-detached urban starts decreased, data showed.

Canadian government bonds tracked the move in U.S. Treasuries. The 10-year yield climbed 7.6 basis points to 1.882%, its highest level since March 2019.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Andrea Ricci)