Indian rupee declines to one-week low as oil rally fans global rate hike worries

The Indian rupee slipped to a one-week low on Thursday, according to Business Recorder, as higher oil prices and limited progress in U.S.-Iran talks fed fears of further global interest rate increases. State-run banks sold dollars, likely on behalf of the Reserve Bank of India, which curbed the decline and kept the currency above 96 per dollar. The rupee closed at 95.9550 per dollar, 0.2% weaker on the day, after touching 95.96 earlier, its weakest since September 17.

Elevated oil prices are adding to inflation in energy-importing economies and straining their public finances, which has weighed on emerging market currencies. Bond markets have also come under pressure, with U.S. Treasury yields reaching multi-year peaks as traders increased bets on Federal Reserve rate hikes. New York Fed President John Williams said on Thursday that another increase before year-end could be reasonable to contain inflation risks.

The dollar index edged up to 101, while most Asian currencies lost between 0.1% and 0.5%, and Indian stocks posted their steepest one-day fall since early July. MUFG cautioned in a note that low currency volatility tends to end abruptly, with high-yielding emerging market currencies likely to suffer most while the yen and Swiss franc outperform. Even so, one-month implied volatility for the rupee stayed near 4%, pointing to subdued expectations.