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MUMBAI: The Indian rupee is seen opening higher against the dollar on Monday after a larger-than-expected decline in US wage growth bolstered bets that the Federal Reserve would prefer smaller interest rate hikes.

The rupee is expected to open at 82.20-82.25, up from 82.72 in the previous session.

The dollar index and Treasury yields tumbled on Friday and US equities rallied after data showed US wage growth slowed to 4.6% year-on-year in December from a revised 4.8% print in the previous month.

Economists surveyed by Reuters had expected a 5% reading. US jobs additions in December topped expectations and the unemployment rate unexpectedly fell.

It was the perfect report from the risk point of view with US jobs holding up and wage pressures cooling, a trader at a foreign bank said.

With the rupee poised to move comfortably above the 82.40 resistance, weak dollar long positions may choose to exit at open, the trader said.

Fed futures see a 3-in-4 chance that the US central bank will hike rates by 25 basis points on Feb. 1 following the jobs report, down from 50 bps at the December meeting.

Indian Rupee gains on oil plunge, tipped to break out of recent tight range

The US ISM services data released following the jobs numbers was another reason for traders to bet on smaller Fed rate increases.

The Institute for Supply Management’s (ISM) non-manufacturing index dropped to 49.6 last month from 56.5 in November. It was the first time since May 2020 that the services reading fell below the 50 threshold, which indicates a contraction in the sector.

“Softer wage inflation suggests labour market dynamics are shifting. With business surveys pointing to recession, tougher times are coming,” ING Bank said in a note.

The focus now shifts to Thursday’s US inflation data, ING added.

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