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C$ rallies as China reopening hopes boost oil prices

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, clawing back nearly all of its previous day's decline, as hopes that China would soon reopen its economy bolstered commodity prices.

The price of oil, one of Canada's major exports, was up 3.8% at $81.14 a barrel on signs of tighter supply and optimism over a Chinese demand recovery.

The Chinese city of Guangzhou has relaxed COVID prevention rules in several districts in an effort to implement rules authorities announced this month aimed at easing the burden of the strict zero-COVID policy.

World equity markets were lifted by hopes that inflation is peaking and a re-opening of China's economy is near, while the U.S. dollar lost ground against a basket of major currencies ahead of a speech by U.S. Federal Reserve Chair Jerome Powell later in the day.

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The Canadian dollar was trading 0.6% higher at 1.3502 to the greenback, or 74.06 U.S. cents, after moving in a range of 1.3497 to 1.3593.

Among G10 currencies, only the Norwegian crown notched a bigger gain. Norway is also a major producer of oil.

On Tuesday, the loonie touched its weakest level in nearly four weeks at 1.3645, in a move that analysts said was likely transaction-driven and despite data showing that Canada's economy grew faster-than-expected in the third quarter.

Canadian government bond yields were higher across the curve on Wednesday, tracking the move in U.S. Treasuries.

The 10-year touched its highest in more than one week at 3.067% before dipping to 3.043%, up 4.7 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski)