Rupee Nearly Flat At 81.25 Even As Dollar Languishes Near A 16-Week Low

The rupee reversed some of the gains from earlier in the session on Friday to close nearly flat against a dollar languishing near 16-week lows as investors eye the much-awaited US jobs data later in the day for clues on the peak in US interest rates.

 Bloomberg showed the rupee was last changing hands at 81.2513 after opening at 81.1338, compared to its previous close of 81.2188.

PTI reported that the domestic currency fell 6 paise to close provisionally at 81.32 against the US dollar. 

Beyond the intra-day trading levels, experts said the domestic currency was expected to trade in a narrow range.

"USD-INR is trading in a broad range of 80.5 to 82.0. This consolidation should continue until inflation settles and the Fed decides to slow down the pace of interest rate hikes," said Rudra Murthy BV, Research Head at Vachana Investments.

Forex traders also said weak domestic equities and foreign fund outflows weighed on the local unit and restricted the appreciation bias from earlier in the session.

Although the rupee temporarily reached 81 against the dollar on Thursday, a spot trader at a bank in Mumbai told Reuters that it was not surprising the currency's "upside momentum" was encountering resistance at that price.

The trader added, "one can anticipate strong dollar demand and several support levels for the USD/INR pair between 80.50 and 81.0."

The dollar index began December on the defensive having just closed out its worst month since 2010, suggesting that the dollar's bull run may be ending.

The US currency fell after news suggested that US inflation was slowing and that manufacturing in the biggest economy in the world contracted last month. It is currently trading close to Thursday's low of 104.56, which is its weakest since August 11.

"The US dollar corrected by more than 5 per cent against major 6 peers in November- posted the worst monthly performance in 12 years. The major reason attributed to the same is the change in the tone from Fed members and the Chairman," said Amit Pabari, Managing Director of CR Forex Advisors.

"And, since a high of 114.80 in late September, the US dollar index is down by 8.70% to trade at its lowest level since mid-August," he added.

Investors are now looking for hints on how rate hikes have influenced the labour market in the nonfarm payrolls data that will be released on Friday.

"Markets are really buying into the pivot story from the Fed," ING FX strategist Francesco Pesole, who noted sentiment is bearish on the dollar, told Reuters.

"Considering what's come from the inflation side, we'll need to see strong payrolls numbers for the dollar to rebound," added the strategist.