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The rupee is gaining strength as oil prices fall and the NDF dollar sales increase.

The Indian rupee rose sharply?on Thursday, thanks to a drop in crude oil prices. Stop-losses were also placed on short rupee bets and dollar sales?in the nondeliverable?forward?market, which helped the currency.

Brent crude fell below $100 a barrel on Monday, down almost 3%, and reversed course after reaching a high of $102.5 for the day. Sources and officials reported that the United States is moving closer to an interim agreement with Iran in order to end their war.

The fall in oil prices lifted Asian currencies, including the rupee. It strengthened as much as 0.5%, before closing the session at 94.25. This was a sharp improvement over its intraday low of 94.9025.

India, which is the third largest oil importer in the world, has been given much-needed relief by the drop in crude prices. The surge in oil prices since the beginning of the Middle East conflict had prompted economists to predict a weaker rupiah, and revise their inflation expectations higher or lower.

The dollar-rupee premiums, which are the cost of hedging foreign currency exposure, have fallen. The implied yield for one year has dropped to a new low of just 2.97%, after a three-week decline.

A trader from a foreign bank stated that there was a lot of selling interest on the NDF, which indicates that short rupee bets have been unwound.

Second trader of a private lender? said that a large Indian bank with a U.K. headquarters and a large Indian bank had been seen selling dollars in great quantities on the local spot markets.

The 25-delta risk reverser for the?dollar/rupee option market, which measures options sentiment, showed a reduced appetite for?rupee bets.

Analysts at MUFG wrote in a report that "the improvement in global investor sentiment and the drop in energy prices are providing a tailwind to emerging?market currencies' performance."

The note stated that "latest developments add to investor confidence" that the US is making progress in finding a diplomatic solution with Iran.

The dollar index fell 0.2%, while Asian currencies rose between 0.2% and 0.6%.

The improved risk sentiment has benefited global equities, with MSCI’s Asia Pacific Stock Index gaining over 2%.

(source: Reuters)