The Indian rupee opened 19 paise stronger on Friday (July 3), tracking broad weakness in the US dollar after softer-than-expected American jobs data dampened expectations of an immediate interest rate hike by the US Federal Reserve.
The domestic currency opened at 95.20 against the US dollar compared with Thursday’s (July 2's) closing level of 95.39, marking an appreciation of 19 paise in early trade.
The move came as global currency markets reacted to signs of cooling momentum in the US labour market. Data released overnight showed US job growth slowed sharply in June, while payroll figures for the previous two months were revised downward, reinforcing expectations that the Federal Reserve may delay further monetary tightening.
Following the data release, traders sharply reduced bets on a September rate hike by the Fed. Market-implied probabilities for another increase fell to nearly 53%, down from around 75% before the employment report.
The softer outlook for US interest rates weighed on the dollar index, which tracks the greenback against a basket of major currencies, pushing it down 0.2% to 100.77 on Friday (July 3) after a 0.5% slide in the previous session. The index is now headed for its steepest weekly decline since early April.
A weaker dollar generally supports emerging market currencies, including the rupee, by improving investor appetite for riskier assets and easing pressure on capital flows.
Asian currencies also traded with a positive bias, gaining between 0.1% and 0.4%, while regional equity markets advanced. MSCI’s broad index of Asian shares rose more than 1%, reflecting improved global risk sentiment.
Market participants, however, remain cautious about the rupee’s near-term trajectory despite the supportive global cues. Traders are closely watching exporter activity, portfolio flows and merchant-related dollar demand, which had pressured the currency in the previous session.
On Thursday (July 2), the rupee slipped to a three-week low amid outflows linked to arbitrage trades and importer payments. While foreign portfolio selling in Indian equities has moderated and bond markets continue to witness inflows, dealers say exporter participation at current levels could determine the next directional move for the currency.
Analysts also noted that while the latest US jobs report has lowered the probability of near-term Fed tightening, uncertainty around inflation and the broader health of the US economy continues to keep markets on edge.
-With Reuters inputs