India’s Rupee Approaches Seven-Week Low on Crude Oil Concerns

The rupee fell toward a seven-week low on concern a rally in oil prices amid tensions in Iraq will widen India’s trade deficit and spur inflation.

The currency ended the day little changed at 60.2075 per dollar in Mumbai, after touching 60.2775 earlier, according to prices from local banks compiled by Bloomberg. The currency traded at 60.5400 on June 18, the weakest level since April 29.

Brent crude climbed to $115.71 per barrel last week, the highest level since September, as the violence in Iraq fanned concern that supplies will be disrupted. India’s trade shortfall reached $11.2 billion, the most in 10 months, and wholesale-price inflation accelerated to this year’s fastest pace of 6.01 percent in May, reports showed this month. Asia’s third-largest economy imports almost 80 percent of its oil.

“The currency is likely to be volatile given the concerns emerging out of Iraq,” said Ankur Jhaveri, co-head of currency and rates in Mumbai at brokerage Edelweiss Financial Services Ltd. “The rupee is likely to be under pressure given that India is a net importer of oil.”

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose five basis points, or 0.05 percentage point, to 7.78 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable rupee forwards were little changed at 61.08 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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