Watering hole in sweltering island capital (6)
I believe the answer is:
hobart
'island capital' is the definition.
(I've seen this before)
'watering hole in sweltering' is the wordplay.
'watering hole' becomes 'bar' (I've seen this before).
'in' indicates putting letters inside.
'sweltering' becomes 'hot' (similar in meaning).
'bar' going within 'hot' is 'HOBART'.
(Other definitions for hobart that I've seen before include "Destination of an annual yacht race starting at Sydney" , "Australian state capital" , "Commonwealth port" , "Tasmania's capital" , "Port of Tasmania" .)