Rupee recovers, premiums inch up

The Indian rupee managed to recover on Monday and far forward premium rose, tracking a fall in near-maturity US yields after data showed US payrolls rose less than expected.

The rupee was at 82.6150 to the US dollar by 11:14 am IST, up from 82.74 in the previous session.

The USD/INR 1-year forward premium rose to 1.3050 rupee and the implied yield was up 2 basis points at 1.58 per cent.

The rupee came under significant pressure last week as premiums dropped to their lowest in over a decade on worries that US rates could rise more and remain high for longer.

Near-maturity US yields dropped on Friday after US employers added fewer jobs than expected. Non-farm payrolls (NFP) increased by 209,000 jobs last month, the smallest increase since December 2020 and below the 225,000 expected.

While the magnitude of the miss was not much, analysts pointed out that this data followed the jump in the private payrolls number that had probably slightly reshaped expectations around the NFP data.

The NFP miss did not impact expectations around the Federal Reserve's rate hike cycle.

"Despite the slower job growth, robust wage growth and the slight decline in the unemployment rate are likely to keep the Fed on track to raise interest rates in their upcoming July meeting," OCBC Treasury Research said in a note.

The US unemployment rate dropped to 3.6 per cent from 3.7 per cent in May while hourly earnings increased 0.4 per cent on-month.

Focus now turns to the US inflation data due on Wednesday that may affect expectations on what the Fed is likely to do following the now near-certain July rate hike.