MUMBAI: The Indian rupee is expected to open higher versus the US currency on Monday, building on last week’s rally, helped by the pullback in the dollar index and US yields and an upbeat risk sentiment.

The non-deliverable forwards indicate the rupee will open at around 81.85 to the dollar compared with 81.9650 in the previous session.

The local currency climbed about 1% last week, its best weekly performance in eight, helped by equity inflows.

The dollar index was marginally lower in Asia, extending Friday’s decline.

The recovery in US equities on Friday and the pause in the selloff in Treasuries undermined demand for the dollar.

Asian shares followed their US peers higher.

More than the dollar index and US yields, it is the overall momentum that may carry the rupee higher at open, a trader at a Mumbai-based bank said.

The dip at the open on USD/INR could “very well run into a barrage of dollar bids” from importers and public sector banks, he added.

Indian rupee hits 1 month high on inflow hopes, improved risk mood

The rupee and other Asian currencies this week will be tracking the Federal Reserve Chair Jerome Powell’s testimony to congress lawmakers on Tuesday and Wednesday and the monthly US jobs report.

Both have the potential to impact the outlook for the Fed rate path, which has seen a sizeable hawkish repricing. Investors expect a peak Fed rate of just a few basis points below 5.50% by September and have almost priced out rate cuts this year.

Morgan Stanley said in a note it forecasts US non-farm payrolls to have increased 190,000 in February, “a big step down” from 517,000 in January.

It expects the unemployment rate to hold at 3.4%, the average hourly earnings to increase by 0.3%, and the average workweek to normalize back to 34.5.