INDIA RUPEE-Rupee, forward premiums hoisted by uptick in Fed rate cut wagers

By Jaspreet Kalra

MUMBAI, July 3(Reuters) - The Indian rupee rose on Thursday after weak U.S. jobs data bolstered Fed rate cut bets, while a U.S.-Vietnam trade deal lifted regional sentiment.

Dollar-rupee forward premiums were helped by increased odds of rate cuts by the U.S. central bank as well with the 1-year implied yield touching an over one-month peak.

The rupee INR=IN rose to 85.55 as of 11:30 a.m. IST, up 0.2% on the day.

Asian currencies were mostly rangebound while regional equities traded in the green, with India's benchmark indices, the BSE Sensex .BSESN and Nifty 50 .NSEI up about 0.4% each.

The odds of a Fed rate cut in July rose to one-in-four after a private sector payrolls report released on Wednesday surprised with the first fall in over two years.

Those odds were at about one-in-five before the data was released, per CME's FedWatch tool.

President Donald Trump also announced on Wednesday that the U.S. has struck a trade deal with Vietnam, including a 20% tariff on exports to the U.S. This helped fuel hopes that more deals may be struck ahead of the July 9 deadline.

U.S. and Indian negotiators are pushing try to land a tariff-reducing deal ahead of the deadline but some disagreements remained unresolved, sources familiar with the talks said.

Traders expect the rupee to be range-bound in the near-term with resistance pegged around 85.40 and support near the 86 handle.

A trade deal "would be a sentimental positive," for the rupee but substantial gains are likely only if it spurs a pick up in portfolio inflows, a trader at a foreign bank said.

Later in the day, the focus will be on the U.S. non-farm payrolls report for May which is expected to influence expectations around the future trajectory of benchmark policy rates.

"Quite bearish positioning on the broad US dollar index also suggests that a near-term squeeze on dollar shorts may be on the cards, though the broader trend is still for Asian currencies to continue strengthening," MUFG said in a note.