The Canadian dollar rallied by more than a cent against the U.S. currency Wednesday after a report that the Russian central bank is preparing to buy loonies to include in its official reserves.

The Canadian dollar rose more than a cent against the U.S. currency Wednesday before falling back later in the day. (Canadian Press)

There was no word on how much Canadian currency the Russian central bank intends to hold in its reserves, which are used to defend the ruble.

But Bloomberg quoted Sergei Shvetsov, the bank’s financial operations head, as telling lawmakers in Moscow that “technical preparations for transactions in Canadian dollars are underway.”

The Canadian currency closed at 95.65 cents US, up 1.13 cents on the day.

David Gilmore, a currency strategist with Foreign Exchange Analytics in Essex, Conn., told CBC News many central banks, particularly in emerging economies such as Russia, China and Brazil, have been diversifying after amassing American dollars in their reserves for years.

"Russia has over 200 billion in reserves so it makes some sense to add Aussie, Canada, and British pounds to its reserve mix," Gilmore said.

It's also a vote in favour of Canada's economic prospects, he suggested.

"It offers exposure to North America without any of the downside currency risks that owning U.S. dollars carries with it," he said. "Canada's banking system doesn't have anywhere near the problems the U.S. banking system has. Households in Canada are not nearly as indebted, overextended, leveraged and spent out the way American households tend to be, and so I think it makes some sense."

But Gilmore doubts that Russian central bank purchases will be enough to affect Canadian exchange rates for long.

Gold also rose on signs central banks will continue buying it to use in their reserves and to move away from the U.S. dollar. The gold sector on the Toronto Stock Exchange was up more than one per cent as the December bullion contract on the Nymex continued to head higher into record territory, closing up $21.40 at $1,186.90 an ounce US.

The Financial Chronicle newspaper reported India might buy more bullion from the International Monetary Fund for its central bank reserves. India announced Nov. 3 it bought 200 metric tons.

With files from The Canadian Press