India’s Rupee Drops on U.S. Interest Rate Speculation

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India’s Rupee Drops on U.S. Interest Rate SpeculationIndia’s rupee declined by the steepest margin in over one month while government bonds fell on bets the resurgent U.S. economy will push the Federal Reserve to hike interest rates earlier than scheduled.

The rupee declined 0.5 percent to trade at 60.6050 per dollar in Mumbai, its biggest drop since Aug. 6. The yield on the 8.4 percent sovereign notes that mature in July 2024 advanced 0.02 percentage point or two basis points, to 8.52 percent.

“We are seeing a spill-over effect of the dollar’s strength globally,” Anindya Banerjee, a Mumbai-based currency analyst at Kotak Securities Ltd, told Bloomberg News. “That said, we expect the rupee to find support from foreign inflows into Indian assets, which should continue as other central banks around the world offer monetary stimulus.”

Foreign investors purchased a net $1.9 billion of Indian bonds and stocks last week, bringing the total investment in 2014 to over $32 billion.

The rupee’s one-month implied volatility, which measures the expected swings in the exchange rate used to set price to options, advanced 48 basis points or 0.48 percentage point, to 6.47 percent.

Meanwhile, the Malaysia’s ringgit also fell on bets the Federal Reserve will bring forward its timetable for raising interest rates. The ringgit declined 0.6 percent, the steepest decline since Sept. 2, to trade at 3.1933 per dollar. The currency’s one-month implied volatility rose 21 basis points, or 0.21 percentage point, to 6.35 percent.

The yield on the nation’s 3.654 percent sovereign bonds that mature in October 2019 advanced one basis point to 3.75 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com