The Indian rupee opened higher against the US dollar on Monday, boosted by a plunge in near-maturity Treasury yields on expectations that the Federal Reserve may take a less hawkish stance on interest rates.
The rupee opened at 81.76 per dollar, up from 82.04 in the previous session.
Following the failure of the Silicon Valley Bank, futures have almost priced out the possibility of a 50 based points rate Fed rate hike at the March 21-22 meeting. A few economists expect the US central bank to not hike at all.
“In light of recent stress in the banking system, we no longer expect the (Fed) to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March,” Goldman Sachs said in a note to clients.
The Fed, the US Treasury and the Federal Deposit Insurance Corporation (FDIC) took steps to avoid a broader fallout of the collapse of SVB.
US equity futures soared 1.8% in Asia trading, the 2-year Treasury yield plunged 20 bps and the dollar index dropped below 104.
While the dollar is weak due to the fall in US yields, it remains to be seen if that translates to rupee strength given that an element of risk aversion and safe haven-hunting will be in the mix now, said Srinivas Puni, managing director at QuantArt Market Solutions.