I certainly think this is an important concern going forward. The fear, and I think the legitimate fear, that the dollar may indeed shoot back up if and when oil prices do recover is indeed limiting the beneficial impacts of the lower dollar now on investment decisions.
I do disagree with Mr. Mendes on a couple of points.
Number one is the transmission mechanism linking oil prices to the value of the Canadian dollar. Why do those two variables move in tandem? It is not because of the need for foreigners to buy Canadian dollars to purchase our oil.
As you've seen, including from the Bank of Canada's own research, the net demand for all Canadian-made products, energy and non-energy, has declined during the period of the oil boom, and we have gone from a situation of trade surplus into chronic and significant current account deficits. Counting everything that Canadians make, foreigners were buying less of what we make even when the oil price was high, so it is absolutely not a function of demand for the dollar resulting from real purchases of our commodities.
I think the transmission mechanism is more through financial assets and the demand among foreign investors for Canadian assets related to the energy sector when the oil price and other commodity prices are high. Through both portfolio investment flows and direct investment flows, that was a mechanism that drove up the dollar, even though our net export performance was deteriorating badly.
I think the Bank of Canada and the Government of Canada can both play a role in breaking that link, because our dollar is considered a petrocurrency, but Canada is not, by and large, a petro-economy. Depending on how you measure it, petroleum extraction is only perhaps 5% of our national GDP.
I think the Bank of Canada needs to reconsider its view that they will leave the foreign exchange market alone. Other central banks around the world have intervened quite effectively. The bank clearly has the capacity to do that when the problem is over-appreciation; there's no limit to the bank's ability, even indirectly through the bank's positioning statements. I do notice that Governor Poloz and others have indicated that the narrow focus on inflation rate targeting may not be appropriate anymore. We've learned the hard way that there are other things the bank has to keep an eye on, including the dollar.
The federal government could also play a role by regulating those inflows of foreign capital that are driven by very high oil prices, in particular by I think a stronger mechanism for reviewing foreign direct investment in the oil patch when oil prices are shooting up. That, I think, was a key part of the transmission mechanism to a higher dollar.