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(Bloomberg) — The Singapore dollar, which has enjoyed a two-year streak as the top-performing currency in Asia, is poised to end its strong performance this year. This shift is attributed to the potential for the Monetary Authority of Singapore (MAS) to begin easing its monetary policy as early as April.
The MAS traditionally uses the exchange rate as its primary monetary policy tool instead of adjusting interest rates. The authority has previously allowed the Singapore dollar to appreciate against major currencies to address price pressures. However, with inflation showing signs of cooling, this policy stance may soon change.
Peter Chia, FX strategist at United Overseas Bank, commented, “The period of Singapore dollar’s outperformance may be ending as we expect the MAS to commence monetary policy normalization in April. While it may still strengthen against the US dollar, the gains are likely to lag behind those of regional peers moving forward.”
So far this year, the Singapore dollar has depreciated approximately 2% against the US dollar, slipping to a mid-tier position among Asian currencies. Any shift in monetary policy could further weigh on the currency, reducing its prospects of leading the region for a third consecutive year.
Market participants will be closely watching February inflation data, due this week, for indications that could prompt the MAS to ease its policy in the coming month. The MAS adjusts the Singapore dollar’s nominal effective exchange rate (S$NEER) by modifying the slope, width, and center of its currency band.
Philip Wee, senior currency economist at DBS Bank, anticipates a delay in policy easing, suggesting, “Our view is still for a slight reduction in the slope in July.”
In addition to domestic factors, global developments, particularly the Federal Reserve’s policy actions, may also impact the Singapore dollar more than its regional counterparts. Last week, the Fed indicated its intention to proceed with three interest rate cuts this year.
Wee noted, “Asian currencies generally underperform the Singapore dollar when the Fed maintains a firm US dollar stance and tend to recover more quickly when the Fed relaxes its policy.”
