Singapore's Policy Pause Sets Stage for Local Dollar as Funding Currency, HSBC Says

(Bloomberg) — The Monetary Authority of Singapore’s policy pause last week paves the way for the local dollar to become a funding currency, according to HSBC Holdings Plc.

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The Singapore dollar’s outperformance is set to fade following the decision and the currency may start to track the greenback’s moves, Joey Chew, head of Asia FX research, wrote in an April 14 note. Against this backdrop, there may be growing market chatter about when the MAS will begin easing, she added.

“The SGD’s nominal effective exchange rate tends to fall below the midpoint when policy easing looks imminent within the next one to two months,” Chew wrote in the note. “The SGD could be becoming interesting as a funding currency for relative value trades in Asia.”

The Singapore dollar posted its biggest one-day decline in over a month following Friday’s policy decision, and may extend its drop if the central bank refrains from tightening further. Authorities expect core inflation to ease and non-oil domestic exports have been buffeted by global headwinds.

Before last week’s review, the MAS had tightened policy for five straight meetings to combat inflation — a move that helped the local dollar to outperform most of its Asian peers.