MUMBAI, Aug. 27 -- India's rupee advanced to 95.40 against the dollar Wednesday, its strongest reading in three weeks, as Brent crude's 2.6% decline on the Iran-Oman Hormuz corridor agreement stripped the currency's most persistent headwind in a single session.

The move, which took USD/INR from 95.74 at Tuesday's close to 95.40 by the end of onshore trading, lowered India's estimated daily crude import cost by roughly $58 million at current volumes. MUFG, the Japanese lender whose Asia currency desk has tracked rupee flows closely this quarter, raised its year-end USD/INR target to 94, implying a further 1.5% appreciation from Wednesday's close.

Brent crude settled at $71.85 a barrel, its lowest since June, after Oman's foreign ministry...