Indian rupee slips on dollar strength

The Indian rupee declined on Friday as the US dollar climbed after data showed the labour market remained strong in the United States, furthering the case for the Federal Reserve to keep tightening rates.

The partially convertible rupee ended at 79.7950, compared to the previous close of 79.5550. However, it closed up 0.1 per cent for the week, its first gain in three.

The dollar index, which measures the currency against six majors, leapt to a 20-year high overnight after data showed a drop-in unemployment claim. Markets now await non-farm payrolls data to see how many jobs were added in August.

Locally, data showed India's preliminary trade deficit for last month came in at $28.7 billion, a marginal pullback from the record $30 billion figure in July.

"Trade deficit number will be a worry, but I don't think the rupee reaction is due to that. It has largely to do with the surging dollar," said Ritesh Agarwal, head of treasury at CTBC Bank.

The dollar's sustained strength will ensure the rupee breaches the 80 level, even though the Reserve Bank of India (RBI) has tried to protect it, he added, predicting that rupee could be at 80.5 by the end of September.

The local currency hit a record low of 80.12 earlier this week, which it has since recovered from with RBI's support.

The central bank on Friday reiterated that inflation had peaked and could come around 5 per cent in the June quarter. However, that failed to inject any optimism into the markets.

Fears of the Fed's move at the upcoming September meeting likely overshadowed it, Agarwal said.

India's inflation issues are driven by supply-side challenges that have yet to be resolved, he said, adding that China locking down its cities and the war in Ukraine will keep adding to those.