Rupee seen lower as US jobs raise bets of larger Fed rate hike

The Indian rupee is tipped to open lower against the dollar as robust US hiring doused expectations that the Federal Reserve could slow the pace of rate hikes.

The rupee will like trade at around 79.35-79.40 per US dollar in initial trades, compared with 79.24 on Friday.

The US economy added more than double the number of jobs than what economists polled by Reuters had predicted, data released on Friday showed. The unemployment rate dipped and average hourly earnings rose more than expected.

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The upbeat labour market report allayed fears that the world's largest economy was in a recession. The report prompted traders to revaluate expectations that the Fed could slow the pace of rate hikes. Traders increased bets that the Fed will raise interest rates by 75 basis points for the third consecutive time.

"The latest US jobs report will give the Fed more confidence in hiking interest rates, putting the rupee under more pressure," a dealer at a state-run bank said. "It has definitely increased the odds of rupee once again revisiting the 80 handle."

Treasury yields surged and the dollar rose against its major peers.

The odds that the Fed will hike rates by 75 basis points at the September meet climbed to about 73 per cent, according to the CME FedWatch tool. Prior to the jobs report, it was near to 30 per cent.

Rupee traders will be watching if the repricing of the Fed rate trajectory will impact the recent revival in equity foreign inflows. Rupee forward premiums will likely fall, tracking the jump in Treasury yields. Asian currencies were broadly lower while equity gauges were mixed. US equity futures inched lower.