The Indian rupee strengthened significantly on Thursday afternoon, propelled by a decline in crude oil prices, alongside stop-loss transactions on short rupee positions and dollar sales in the non-deliverable forward (NDF) market, traders reported.
Brent crude oil prices dipped below $100 per barrel, marking a nearly 3% decrease and reversing an earlier rise to $102.5, as negotiations between the United States and Iran aimed at reaching a temporary ceasefire reportedly advanced, according to sources and officials.
This drop in oil prices provided essential relief for India, the world’s third-largest oil importer. The surge in oil prices since the onset of the Middle East conflict had led economists to anticipate a weaker rupee, adjust inflation predictions upwards, and downgrade India’s economic growth outlook.
Dollar-rupee forward premiums, which represent the cost of hedging currency exposure, fell, with the one-year forward implied yield declining to a three-week low of 2.97%.
Significant selling activity was observed in the NDF market, suggesting a potential unwinding of short rupee positions, noted a trader from a foreign bank. A second trader from a private financial institution added that a large Indian state-run bank and a UK-based bank were heavily involved in dollar selling within the domestic spot market.
The one-month dollar-rupee 25-delta risk reversal, which reflects sentiment in the options market, indicated a decreased interest in shorting the rupee.
Analysts at MUFG commented, “The improvement in global investor risk sentiment and the drop in energy prices are providing a tailwind for emerging market currency performance.” They also highlighted that recent developments have bolstered investor confidence regarding ongoing diplomatic progress between the US and Iran.
Asian currencies generally appreciated between 0.2% and 0.6%, while the dollar index fell by 0.2% to 97.87. Global equities were positively impacted by the enhanced risk sentiment, with MSCI’s Asia-Pacific stock gauge rising by more than 2%.
Published on May 7, 2026.
