Canadian Intervention Highly Doubtful

There is much talk today, circulating NY dealing rooms, that the Bank of Canada is getting ready to intervene in the foreign exchange market. We are dubious are that the BOC would intervene unilaterally on the CAD/USD exchange rate. In fact, we cannot recall a single episode of BOC intervening on CAD/USD in recent years, if ever. Last week, when US dollar had a CAD1.07 handle and Euro-Cad was near 1.5350 that the Canadian dollar looked vulnerable. We thought the risk of verbal intervention was great. The Fates smiled and within an hour our our comment Canadian Finance Minister Flaherty noted that the strength of the Canadian dollar could slow the recovery. The Canadian dollar sold off. However, to go from verbal intervention to actual material intervention is beyond the pale. In fact even Flaherty seems to be de-emphasizing the significance of the exchange rate in today's comments from his trip to China. Anticipating the market was getting too worried about intervention yesterday, our proprietary desk expressed this view by buying Canadian dollars against the Mexican peso yesterday. Although we did not expect such immediate results, we do expect the Loonie to continue to trend higher against the peso. We look for a move initially to MXN12.05 and then back to the early Aug high near MXN12.33. For its part, the dollar briefly took out the resistance we identified yesterday near CAD10.50, but it has snapped violently back. Initial support is seen near CAD1.0865 now and then CAD1.08.