Rupee weaker as Asian FX on the back foot on Fed rate-hike bets

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee weakened against the dollar on Monday, along with most other Asian emerging market currencies after recent U.S. data bolstered bets of another Federal Reserve rate hike.

The rupee finished at 81.98 per U.S. dollar compared with 81.8850 in the previous session.

Importer-led dollar demand pulled the currency down from its intraday high of 81.78, a private bank trader said.

Inflows over the next few days should be watched, as foreign investors turned net buyers of Indian equities this month and there is general optimism about the currency, the trader added.

The rupee, till last week, had risen for three straight weeks.

However, the 81.80-81.50 zone remains a strong resistance for the currency as the Reserve Bank of India (RBI) has previously bought dollars near those levels, said Amit Pabari, managing director at CR Forex.

The dollar index hovered near 102-levels after U.S. jobs data on Friday indicated a resilient labour market, raising bets of a 25 basis point (bps) hike at the Fed's May meeting to 70%.

U.S. yields responded, with 2-year near 3.93%.

USD/INR forward premiums continued their decline since the RBI held the policy rate steady last Thursday, with the 1-year implied yield down a further 7 bps to 2.41%.

India's overnight indexed swap rates were pricing in interest rate cuts before the end of 2023.

Most Asian currencies weakened, with the Chinese yuan and the Thai baht down between 0.1% and 0.4%.

Investors now await U.S. March inflation figures and retail sales due on Wednesday and Friday, respectively, to gauge the Fed's policy path after strong labour data.

The minutes of the U.S. central bank's March meeting, in which it hiked rates by 25 basis points (bps) but sounded dovish, will be released on Wednesday as well.

(Reporting by Anushka Trivedi; Editing by Nivedita Bhattacharjee)