Rupee to recover on pullback in US yields after jobs data

The Indian rupee is expected to recover on Monday on the back of a pullback in U.S. yields and the decline in the dollar after the U.S. economy added fewer jobs than was forecast. Non-deliverable forwards indicate rupee will open at around 82.70 to the U.S. dollar, compared with 82.84 in the previous session. The dollar index retreated 0.4 per cent on Friday. Asian currencies began the week on a higher note.

There will be relief for the rupee at the open "to an extent," with dollar broadly lower, a foreign exchange trader said. "This means there is no threat to the 83 handle being taken out today. We now move on to the U.S. inflation data and the RBI (Reserve Bank of India)." The 10-year U.S. yields dropped 12 basis points on Friday after U.S July nonfarm payrolls increased slightly weaker than economists' expectations, and job additions for the previous two months were revised lower.

The 2-year U.S. yield declined while the already low odds of Federal Reserve rate hike in September dropped further. However, Friday's report did have points which could sow doubts on whether the Fed will be on hold from now on. The unemployment rate dropped and wage growth surprised on the upside, suggesting that the U.S. labour market remained resilient.

"A mixed outcome, which doesn't rule out further rate hikes from the Federal Reserve, but doesn't give the central bank the all clear on inflation risks either," ING Bank said in a note. Meanwhile, U.S. consumer inflation data and the RBI policy decision are due Thursday. An in-line or a softer-than-expected reading will reinforce expectations of a Fed pause.

KEY INDICATORS:

** One-month non-deliverable rupee forward at 82.76; onshore one-month forward premium at 7 paisa

** USD/INR NSE August futures settled at 82.8975 on Friday

** USD/INR August forward premium at 5.5 paisa

** Dollar index at 102.05

** Brent crude futures down 0.1 per cent at $86.2 per barrel

** Ten-year U.S. note yield at 4.06 per cent

** As per NSDL data, foreign investors bought a net $26.2mln worth of Indian shares in August. 3

** NSDL data shows foreign investors sold a net $20.1mln worth of Indian bonds in August. 3