The Indian rupee rallied on Monday to log its best intraday performance since December 2023 after exit polls projected a third term for Indian Prime Minister Narendra Modi's party and alliance, boosting investor confidence.
The rupee closed at 83.1425 against the U.S. dollar, up nearly 0.4% on the day, its best intraday percentage gain in more than five months.
The local currency rose to a peak of 82.9575 in early trading but eventually trimmed gains.
The rupee's strengthening also spurred importer hedging on Monday, which eroded the currency's gains, while traders also cited bids from state-run banks when the local currency rose above 83.
Benchmark Indian equity indices, the BSE Sensex and Nifty 50 touched record highs and ended the day 3.4% and 3.2% higher, respectively.
Exit polls released over the weekend indicated a decisive mandate and a third term for Prime Minister Narendra Modi's party and its allies.
But India's exit polls have a patchy record, often getting the outcome wrong so investors are likely to be cautious and await the results of the national election due on Tuesday.
"Think 82.50 may be on the cards by Friday if the result is on the same lines as the exit polls and if the RBI does not step in before that to buy dollars," a foreign exchange trader at a private bank said.
Meanwhile, dollar-rupee forward premiums declined, with the 1-year implied yield down 3 basis points at 1.62%, its lowest level in over one month.
The dollar index rose 0.1% to 104.72 and Asian currencies were mixed.
"Depending on the margin of the BJP's victory, we would expect the INR to react well and only weaken in the event of a less clear outcome," Barclays Bank stated in a note.
