if rate changes don't seriously affect currency prices, what should government do regarding monetary policy?

probably the best way to use monetary policy is as a kind of a distraction to offset other things. so, for example, canada might be concerned that a short-term spike in oil prices might pull the dollar too high. it could manipulate rates to act against that spike and try and smooth out the curve.

yes - i'd define that as currency manipulation. but, it's the best you can hope to do.

the real purpose of a central bank is not to control inflation but to ensure that the state maintains sovereignty over it's money supply.