What Caused the Indian Rupee to Retreat After a Recent Rally Amid Corporate and NDF Dollar Demand? After its recent rally, there was a slight pullback in the Indian rupee due to increased c

The Indian rupee fell on Monday, snapping a three-session winning streak caused by dollar demand from local businesses and the non-deliverable forwards market. Despite this, the currency remained on the stronger side of 90 per dollar. 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 characterized 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. On Monday, swap points between the last day of December and the first day of January rose above 14 paisa in response to concerns about excessive dollar liquidity. A trader at a private bank stated, "Likely speculative positioning in NDF is also opening up arbitrage with the onshore forwards, leading to upward pressure on premiums." 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.