Rupee Falls to Four-Week Low as Oil Adds to Trade Deficit Woes

The rupee fell to a four-week low on concern India’s trade deficit will widen from a 10-month high after violence in Iraq fueled a surge in global oil prices.

Brent crude jumped 4.2 percent this week, the most since July, on concern supplies will be disrupted after militants linked to al-Qaeda captured the northern Iraqi city of Mosul. India’s trade shortfall was $11.24 billion in May, compared with $10.1 billion in April. Asia’s third-largest economy relies on imports for about 80 percent of the oil it uses.

“The rise in crude oil prices due to tensions in Iraq is weighing on the rupee,” said Vikas Babu, a Mumbai-based foreign-exchange trader at Andhra Bank.

The rupee declined 0.4 percent to 59.485 per dollar at 9:52 a.m. in Mumbai, taking the week’s loss to 0.5 percent, according to prices from local banks compiled by Bloomberg. The currency fell to 59.4925 earlier, the weakest since May 15.

Government reports published yesterday showed consumer-price inflation slowed to 8.28 percent in May from 8.59 percent the previous month, while April’s industrial output rose 3.4 percent after a 0.5 percent contraction in March.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 13 basis points, or 0.13 percentage point, to 6.82 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards on the rupee fell 0.4 percent to 60.29 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 the U.S. currency.

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