After touching new lows last year, the rupee has appreciated against the US dollar to a fresh 16-month high following the landslide victory of BJP in 4 out of 5 state elections.
Rupee opened at 65.76 against the US dollar on Wednesday versus 65.82 on Tuesday. Post the US election outcome rupee depreciated to an all time low of 68.86 against the USD.
The rupee may further appreciate to Rs 65.10 for a dollar in the short-term but may not go below Rs 65, said NS Venkatesh, ED, Lakshmi Vilas Bank.
Although, he added that the US Federal Reserve is likely to hike rates at least four times this year, which will lead to a depreciation of the rupee to around Rs 66.50 per dollar in the next six months.
The rupee's surge on Wednesday was led by strong FPI buying on Tuesday following BJP's landslide victory in Uttar Pradesh.
On the other hand, dollar buying slackened ahead of the US Federal Reserve meet, which concludes tonight.
The rupee has gained 3.7 percent in 2017 so far.
The US Fed is likely to hike rates very gradually and this will ensure continuous flows into the Indian equity market, said Deepali Bhargava, Economist at Credit Suisse. So she expects the rupee to rally in the short-term.
Bhargava said import intensity decline has been seen since the last 2012, coal imports have also come down, imports have gnerally come down,
The local market has been running parallel to the emerging markets. So until the EMs continue to rally, the rupee will gain, said Sajjid Chinoy, Asia Economics, JPMorgan.Watch video for more.