(April 17): The Monetary Authority of Singapore’s (MAS) policy pause last week paves the way for the local dollar to become a funding currency, according to HSBC Holdings plc.

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, the head of Asian foreign exchange research, wrote in a note last Friday (April 14). Against this backdrop, there may be growing market chatter about when the MAS will begin easing, she added.

“The Singapore dollar'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 Singapore dollar 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 last 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.