India Rupee Falls to Three-Week Low as China Fuels Risk Aversion

India’s rupee dropped to a three-week low as demand for riskier assets ebbed after China weakened the yuan’s fixing to a 2011 low and North Korea said it tested a hydrogen bomb.

The rupee declined 0.2 percent to 66.7075 a dollar as of 11:14 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. It fell to 66.8150 earlier, the weakest level since Dec. 16. A gauge of dollar strength advanced for an eighth day, set for its longest run of gains since September 2014.

The yuan sank to a five-year low as the People’s Bank of China lowered its reference rate for a seventh day, spurring speculation policy makers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows. While allowing weakness may help the Chinese economy, it risks spooking global markets, according to Japan’s Resona Bank Ltd.

“The yuan is pulling all other Asian currencies lower,” said Paresh Nayar, Mumbai-based head of currency and money markets at the local unit of South African lender FirstRand Ltd. “A deepening slowdown in China will have an impact on other countries as well,” he said, adding that the dollar’s strength is also weighing on the rupee.

Investor sentiment also soured as North Korea conducted its fourth underground nuclear test Wednesday, a move that escalates tensions on the peninsula with neighbors South Korea and Japan.