SINGAPORE - The Singapore dollar’s two-year streak as the top-performing Asian currency is seen ending in 2024 as the nation’s central bank may start loosening its policy as soon as April.

The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main policy tool rather than interest rates, has let the local dollar appreciate against major trading partners’ currencies to counter price pressures.

That may change now as inflation shows signs of slowing.

“The period of Singapore dollar’s outperformance may be ending as we expect the MAS to commence monetary policy normalisation” in April, said Mr Peter Chia, an FX strategist at UOB.

“While it may still strengthen against the US dollar, the gains are likely to lag regional peers going forward.”

The local currency has already weakened about 2 per cent against the US dollar in 2024, slipping to the middle of the pack in Asia.

A change in the monetary settings could bring more pain for the currency, lowering its chances of leading the region for a third straight year.

After inflation cooled in January, traders will be monitoring February data this week to see if it opens the door for an easing in the MAS policy in April.

The MAS targets the Singapore dollar’s nominal effective exchange rate, or S$Neer, and adjusts the pace of its appreciation or depreciation by changing the slope, width and centre of the currency band.

DBS Bank sees the central bank waiting a bit longer before easing its policy.

“Our view is still for a slight reduction in the slope in July,” said Mr Philip Wee, a senior currency economist at the lender.

Besides local factors, the United States Federal Reserve’s moves may also weigh on the Singapore dollar more than its peers.

The Fed last week signalled that it remained on track for three interest rate cuts in 2024.

“Asian currencies underperform the Singapore dollar when the Fed’s stance keeps the US dollar firm, and recover faster when it relaxes the stance,” said Mr Wee. BLOOMBERG