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Indian Rupee Weakens as RBI Pulls Highest Value Currency Note

In contrast to the rupee, other Asian currencies were mostly higher after US Federal Reserve chairman Jerome Powell struck a moderately dovish stance


A man holds 2000 Indian rupee notes as he leaves a bank in Mumbai, India
The Reserve Bank of India said it will withdraw its highest denomination 2,000-rupee note from circulation. Photo: Reuters

 

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.

 

Also on AF: India to Withdraw 2000-Rupee Notes Ahead of Elections

 

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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India, Russia Halt Rupee Trade Talks, Moscow Prefers Yuan

 

India Push to Settle Global Trade in Rupees ‘Not Without Risks’

 

 

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]