The Indian rupee remains among the best emerging market bets to ride out volatility from the closely contested US presidential election, supported by a central bank prepared to defend the currency with the world’s fourth-largest reserve pile.

Traders have ramped up their search for havens, analysing latest polling data that shows no clear leader in the race between Kamala Harris and Donald Trump before Tuesday’s vote. The uncertainty has pushed up the cost of hedging dollar movements over the next week to its highest levels since early 2020. 

The Reserve Bank of India’s (RBI) near-record foreign exchange (FX) reserves have helped it maintain control over the rupee, making it less vulnerable to US election-related swings. Unlike many of its peers, the rupee is less susceptible to shifts in US tariff policies, given India’s domestic-oriented economy, according to MUFG Bank.

“The RBI remains strongly in the market to cap FX volatility and FX reserves are more than adequate,” said Michael Wan, senior currency analyst at MUFG Bank. Also, India’s “macro stability remains quite strong, with a manageable current account deficit of slightly more than 1% of GDP and gradually moderating inflation pressures,” he said. 

RBI governor Shaktikanta Das has stressed the importance of building foreign exchange reserves to shield the economy from volatility. He hasn’t hesitated from using the pile to prevent a sharp fall in the currency, especially around the 84 to a dollar mark. 

The central bank likely sold US$10.8 billion in the three weeks to Oct 25 to defend the rupee, as per Bloomberg Economics calculations. The rupee hit a record low of 84.1087 on Monday amid continued outflows from the nation’s equities.

The dollar-rupee’s one-week implied volatility stood at 3.5250%, versus 20.3% for the dollar-Korean won, and 12.8% for dollar/rupiah, according to data compiled by Bloomberg. The Mexican peso, often considered an emerging market bellwether to US polls, has seen volatility surge to a four-year high.