The Indian rupee fell slightly on Wednesday, retreating from a one-month high hit earlier as a sharp fall in local shares and good dollar demand from oil importers offset corporate greenback sales and a lift from stronger Asian currencies.
Although the rupee rose to as high as 59.96 earlier in the session, its highest since April 9, on the back of a large corporate dollar sale, traders said sentiment remains cautious ahead of the outcome of the national elections on May 16, while exit polls will start to be disclosed on Monday.
Markets have priced in a narrow victory for the opposition Bharatiya Janata Party and its allies in the 543-seat lower house of parliament, and a share sell-off could follow should exit polls suggest otherwise.
"I think exit poll results will create volatility in the market. It is important to be cautious against the widespread view that INR will appreciate," said Samir
"I think Rajan (RBI chief) is resolute enough to manage volatility well. On the downside I don't think RBI will intervene until 62 while on the upside they may come in towards 58 levels," he added.
Traders expect the rupee to trade in a 59.80 to 60.60 range until the exit polls.
The partially convertible rupee closed at 60.135/145 per dollar compared with its previous close of 60.11/12.
Dollar sales by a large Indian engineering firm were responsible for sending the rupee to a one-month high earlier in the day, but demand from oil firms and a retreat in domestic shares pulled it off that high.
India's NSE index fell nearly 1 percent on Wednesday to its lowest close in nearly 1-1/2 months as software stocks slumped.
Traders will continue to monitor foreign fund flows and movement in other Asian currencies in the near-term for direction.
In the offshore non-deliverable forwards, the one-month contract was at 60.44 while the three-month was at 61.17.