The Canadian dollar strengthened on Wednesday against the U.S. dollar as oil prices rallied following a drop in U.S. inventories and after more countries supported an extension to OPEC supply cuts.

The loonie traded at $73.22 cents US as of Wednesday's market close, up 0.37 cents from Tuesday at 4 p.m. ET.

The currency traded in a range between $1.3648 and $1.3732.

Prices of oil, one of Canada's major exports, rose after U.S. crude inventories made the biggest one-week drop this year. Iran and Algeria also joined Saudi Arabia in supporting an extension to OPEC supply cuts.

U.S. crude prices were up 3.23 per cent to US$47.36 a barrel.

"What's good for oil good is for the loonie. We've seen the loonie move in tandem and regain a little bit of lost ground," said Rahim Madhavji, President at

While the Canadian dollar, commonly known as the "loonie", could strengthen in the short term, Madhavji said the U.S. dollar is expected to grind higher.

"I still think the story for the loonie is not a good one as we head into the middle and latter half of the year."

Comments by U.S. Commerce Secretary Wilbur Ross in a Reuters interview also helped the currency. Ross said the Trump administration would try to use existing tools to enforce trade rules, rather than adopt the slash-and-burn approach discussed on the campaign trail in 2016.

The greenback recovered from earlier losses against a basket of major currencies as the impact of FBI Director James Comey's abrupt firing dissipated for the time being.

The loonie had hit a 14-month low on Friday at $1.3793. Lower commodity prices, concerns about a possible North American Free Trade Agreement renegotiation and investor wariness about how troubles at alternative lender Home Capital Group Inc (HCG.TO) could affect Canada's real estate market, put the currency under recent pressure.

Home Capital published data on Wednesday showing depositors were continuing to withdraw funds but at a slower rate than before.

The Liberal Party squeaked to victory in British Columbia elections, but it lost its majority after 16 years in power which left the future of big oil and gas projects in the region unclear.

Canadian government bond prices were mixed across the yield curve. The two-year edged up half a cent to yield 0.719 per cent and the 10-year slipped 14 cents to yield 1.637 per cent.