SINGAPORE (BLOOMBERG) - Singapore's dollar is paying the price for being easy to sell.

It's tumbling at the fastest pace since 2001 following China's shock devaluation as traders use it as a proxy for less- liquid currencies such as Thailand's baht and Indonesia's rupiah.

The Singdollar dropped below the $1.39 to the US dollar year-end estimate in a Bloomberg survey, leaving banks including Commerzbank, the most-accurate forecaster, and HSBC Holdings rushing to review predictions.

There are domestic concerns, too, as investors speculate whether Singapore will ease policy after China's shock move, just as it did in January when the Swiss National Bank scrapped its exchange-rate peg. The Monetary Authority of Singapore issued a statement Wednesday saying it stands ready to curb excessive volatility in the city-state's currency.

"There are concerns about whether China's move will spark off some sort of competitive devaluation race," said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "A lot of people tend to use the Singapore dollar to express their views on Asian currencies, and that's a factor in its decline."

ANZ is reviewing its forecasts for currencies across Asia after China devalued the yuan on Tuesday. Its current prediction is in line with the consensus in Bloomberg's strategist survey. MAS guides the currency against an undisclosed basket of peers, with the yuan and Malaysian ringgit probably having similar weightings, according to ANZ.

Singapore's currency plunged to a five-year low of $1.4165 per US dollar on Wednesday, before recovering to $1.3994 as of 7 am local time Thursday. That left it down 5.3 per cent this year, on course for its steepest drop in almost two decades.

All major Asian currencies apart from the yen have weakened since China's announcement, with the baht down 0.4 per cent and the rupiah sliding 1.8 per cent.

The yuan fell 1.8 per cent on Tuesday and 1 per cent Wednesday, its biggest two-day drop since China unified official and market exchange rates in January 1994.

Risk-reversal rates suggest traders are bearish on the Singdollar versus six of its eight most-traded global peers over the next three months. That means it's more expensive to buy options to hedge against weakness than it is to protect against an advance.

Commerzbank, which topped Bloomberg's second-quarter rankings for predicting Singapore's dollar, said it may now revise its year-end estimate to a weaker level than the current $1.42 forecast.

The yuan's stability over the past four months restrained the Singdollar's depreciation, even as the ringgit tumbled to a 17-year low, according to Charlie Lay, a strategist at Commerzbank in Singapore.

"That anchor gave way," Lay said. "The key question is the CNY policy going forward."

Investors are concerned that China's removal of the yuan's de facto peg with the dollar will trigger a wave of competitive easing as other Asian central banks look to re-energize their economies. Vietnam already widened the trading band on its currency on Wednesday.

Singapore's dollar is the fourth most-traded currency in Asia, lagging behind the yen, yuan and Hong Kong dollar, according to the Bank for International Settlements.

The amount of derivative contracts written on the Singdollar versus the greenback over Tuesday and Wednesday surged to US$15 billion in the two busiest days for at least three months, data compiled by Bloomberg show. Three-month implied volatility jumped to a three-year high of 8.75 percent.

HSBC cut its year-end forecast to $1.43 from $1.37 after China's move.

There's an increasing risk MAS will adjust policy at its next scheduled meeting in October, if not earlier, said Paul Mackel, head of Asian foreign-exchange research at HSBC in Hong Kong. The central bank unexpectedly acted in January by seeking a slower pace of currency appreciation.

Stamford Management Pte, which oversees US$200 million for Asia's multi-millionaires, expects the local dollar to slide to a six-year low of $1.45, said chief executive officer Jason Wang. He's telling clients to sell the Singdollar and buy the pound.

"We do see a relatively anemic external economy," Wang said from Singapore. "$1.45 definitely looks like the next magnet that Sing dollar will gravitate to."