Key Takeaways
- Indian rupee falls to a one-week low due to rising oil prices and U.S. rate hike worries.
- Dollar sales by state-run banks limited rupee losses but kept it above 96 per dollar.
- Asian currencies weakened as global bond yields hit multi-year highs.
The Indian rupee fell to a one-week low on Thursday, dropping 0.2% to 95.9550 per dollar, as oil prices surged and little progress in U.S.-Iran talks raised concerns over inflation and potential global rate hikes.
The currency had slipped to its lowest level since September 17, at 95.96 per dollar, before recovering slightly due to dollar sales by state-run banks, likely on behalf of the Reserve Bank of India.
The Iran conflict has weighed on emerging market currencies, as elevated oil prices have increased inflation in energy-importing economies and strained fiscal health.
Global bond yields, particularly U.S. Treasury yields, have also added to the pressure, hitting multi-year highs as traders bet on rate hikes by the Federal Reserve.
New York Federal Reserve President John Williams suggested it was reasonable to think the U.S. central bank might need to raise interest rates again before the end of the year to address inflation risks.
The dollar index was slightly higher at 101, while Asian currencies weakened between 0.1% to 0.5%.
Indian equities also experienced their worst single-day drop since early July, reflecting the broader market sentiment.
Despite the headwinds from oil prices and higher global bond yields, near-tenor volatility expectations for the rupee have remained subdued, with the 1-month implied volatility gauge hovering around 4%.
Market analysts warn that periods of low foreign exchange volatility often end with significant market movements, and high-yielding currencies in Asia, including the Indian rupee and Indonesian rupiah, are particularly vulnerable.
