The Indian rupee was a tad stronger on Friday but on course for a weekly decline as hedging demand and intermittent maturities of non-deliverable forward contracts blunted the boost from a broadly softer dollar.
The rupee was at 95.27, up 0.1% from its previous close and tracking modest gains across most Asian currencies after softer-than-anticipated U.S. payroll growth data eased expectations of rate increases in the United States.
The dollar index eased 0.2% to 100.7, with traders in the interest rate futures market scaling back the odds of a Federal Reserve rate hike in September to about 50%.
"While Fed tightening is priced as a base case, the urgency for tightening has diminished somewhat for the immediate term and should provide some comfort for sentiment," analysts at DBS said in a note.
Despite a pickup in foreign portfolio inflows into Indian government bonds and a broadly weaker greenback, the rupee has struggled to benefit in the face of corporate dollar demand and recurring expiries of NDF contracts, traders said.
"A move towards the 95.80-96 zone could spark a fresh bout of importer dollar buying, but it's quite likely the central bank won't allow a swift fall either," a trader at a private bank said.
Elsewhere, Indian equities tracked regional stocks higher, while the yield on the 10-year government bond was little changed as traders awaited a hefty auction of the benchmark note.
Overseas investors have stepped up bond purchases in anticipation of an inclusion in the Bloomberg Global Aggregate Bond Index, buying nearly $500 million of debt in the first two days of July after a record $3.1 billion in June.
