A well-known currency analyst, Charles St-Arnaud of Nomura Securities, warns that the new 15% tax on foreign purchases on Vancouver real estate may have a wider effect than expected.
With Ontario expected to follow suit any time now to cool the red hot Toronto market, the chill on these two residential markets may reach out and negatively effect the loonie as less money flows from abroad to Canada’s hottest markets.
Substantial demand for Canadian dollars may wane
Mr. Arnaud, who before Nomura worked for the Bank of Canada, explains the logic is pretty straightforward.
When foreigners buy residential real estate in Vancouver and elsewhere in Canada, they purchase Canadian currency to do so.
That demand for Canadian dollars has become substantial, as the booming markets in Metro Vancouver and the Greater Toronto Area have become magnets for foreign investors.
And like anything else, rising demand for the currency pushes up its value.
But this does not surprise, because unintended consequences are most likely to pop up when governments change rules preemptively without consultation, just as B.C. has done and Ontario is likely to do.