The rupee ended at 89.65 per dollar, down 0.4% from its closing level in the previous session. The currency had gained over the last three sessions to touch a near one-month peak of 89.25 on Friday.
The rupee hovered between 89.45 and 89.72 throughout the day’s trading, which was characterised by a pickup in importer hedging demand and pressure on the currency emanating from the NDF market, traders said.
Dollar-rupee forward premiums extended gains, with the one-month premium surging to 47 paisa and the one-year implied yield jumping about 20 basis points to 3.05%, both at multi-year highs.
Excess dollar liquidity, position unwinding and hedging demand in the non-deliverable forward market have driven the move, traders said.
Concerns over excess dollar liquidity have reflected in last-day December/first-day January swap points rising over 14 paisa on Monday.
“Likely speculative positioning in NDF is also opening up arbitrage with the onshore forwards, leading to upward pressure on premiums,” a trader at a private bank said.Elsewhere, Asian currencies were largely on the defensive on Monday even as the dollar index retreated slightly to 98.5.
Looking ahead to next year, analysts at MUFG reckon that while the dollar is no longer as overvalued, it can still weaken further. The dollar index is on course to end the year lower by 9%.
“Ultimately the dollar is likely to be driven primarily by the conditions of the US economy and the direction of monetary policy and we see the FOMC cutting rates on three occasions next year,” the analysts said in a note.
