But in the real world, we seldom find ourselves in such a sweet spot; capital flows are either too much or too little. When capital flows are far in excess of CAD, the exchange rate appreciates out of line with fundamentals. And if the flows are volatile, that will be reflected in the exchange rate movement too.
The Reserve Bank then has to make a judgment on whether or not to intervene in the forex market. This is not as straight-forward as it seems.