The Indian rupee opened weaker against the US dollar on Monday after the central bank said it will withdraw the highest value currency note from circulation.
The Indian currency opened at around 82.85 to the dollar, compared to 82.66 in the previous session.
On Friday, the Reserve Bank of India said it will withdraw its highest denomination 2,000-rupee note from circulation.
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The USD/INR forward premiums, which are already low, are expected to decline further with rupee money market rates likely to drop significantly on account of excess liquidity that RBI’s move will lead to, said Abhiskek Goenka, CEO at FX advisory firm IFA Global.
“Rupee would come under pressure” alongside the fall in the cost of carry (the forward premiums), Goenka said.
“Conducting sell/buy swaps (on USD/INR) would address cash dollar shortage and suck out rupee liquidity and could offer respite.” he said.
“82.90 has been an important resistance for the pair. It will be interesting to see if the RBI puts a cap here.”
In contrast to the rupee, other Asian currencies were mostly higher after US Federal Reserve chair Jerome Powell struck a moderately dovish stance, contrary to market expectations.
Powell said on Friday it is still unclear if US interest rates will need to rise further.
“After Powell’s speech, market pricing is firmly back to thinking the Fed will pause,” Chris Weston, head research at Melbourne-based Pepperstone said in an email.
Odds of a rate hike at the June meeting, which had been moving up in recent days in view of the resilient US data, were down back to less than 10%.
The dollar index was down to 103.02.
- Reuters, with additional editing by Vishakha Saxena
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