Thank you very much for the question. It's extremely important, and obviously extremely timely.
Certainly, we have seen substantial volatility in exchange rate markets recently, including that for the Canadian dollar. It's important to remember, as you know, that exchange rate markets, like all asset markets, can be volatile and can overshoot, and certainly the volatility we have seen in the Canadian dollar cannot be accounted for purely by changes in fundamentals.
We can discuss, if you wish--although you may not want to use the time--potential reasons behind that volatility, but I'll leave that to the side and go more to the substance of the question, which is what the bank can do.
I'll say, first and foremost, because it bears repeating, that the experience of the bank, the experience of Canadian monetary history, is that the best contribution the bank can make to the economic and financial welfare of the country is to focus on its principal and sole objective, which is to achieve an inflation rate that's slow, stable, and predictable.
In the context of doing that, as I mentioned in my remarks, the exchange rate does play an important role, and certainly exchange rate movements that are detached or somewhat differentiated from fundamental movements need to be considered in the conduct of monetary policy.
How do we consider them? We need to look at the reasons the exchange rate may have moved; we need to think through the persistence of those exchange rate changes. We've obviously seen a very sharp spike up and rapid return. Then we need to think about the consequences of this for the economy, all in the context of achieving the exchange rate target.
What specifically can the bank do? I do not favour a pegged exchange rate. I do not favour a monetary union. We can go into more detail on why, if people wish to later. But I think there is a premium on the bank communicating openly with Canadians, being open with the market about the potential impact of these changes on output and, ultimately on inflation, and providing a sense of stability as its objective function.
The way to inject more volatility into asset markets, whether they're interest rates, exchange rates, or equities, is to be perceived to change between targets. I would submit that at the bank we need to retain focus on the inflation target, explain what we're doing, explain what the potential consequences are of exchange rate movement, differentiate between the potential reasons behind that, and the market will adjust accordingly.