The Indian rupee, which hit an eight-month high this week, has staged an impressive turnaround over the past seven months, but analysts say it may struggle to sustain its move below the key psychological level of 60.
The currency has strengthened around 12.5 percent against the U.S. dollar since hitting an all-time low of 68.85 in August 2013 during the peak of the emerging markets crisis.
The dollar-rupee pair touched 59.99 on Friday before edging back above 60. It last traded at 60.10.
A combination of factors have fueled the currency's appreciation - including an improvement in economic fundamentals such as the current account, together with central bank governor Raghuram Rajan's proactive approach to monetary policy.
"It's one of the fragile five that's no longer so fragile," Robert Minikin, foreign exchange strategist at Standard Chartered told CNBC, referring to the five economies, including Indonesia, Brazil, Turkey and South Africa, which were hardest hit during the emerging market sell-off last year. "[But] in terms of our outlook, we have the spot rate holding above 60 for the rest of the year," he added.
In order for dollar-rupee to sustainably break below 60, Minikin says there will need to be a decisive improvement in the country's growth and inflation dynamics amid the backdrop of a solid global recovery. In another words, investors need to see much stronger economic expansion and slower inflation. While there has been a let-up in rising price pressures recently, economic activity remains weak. Industrial production, for example, rose just 0.1 percent in January from the year-ago period.
With the rupee expected to remain relatively stable for the remainder of the year, Minikin says the currency offers an attractive carry trade opportunity, citing the wide yield spread between Indian government bonds and U.S. Treasurys.
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Khoon Goh, senior FX strategist at ANZ agrees the rupee may struggle to strengthen beyond 60 on a sustained basis, noting that positive economic and political developments have already been priced into the currency.
"We have elections coming up, with the Bharatiya Janata Party [BJP] expected to win - it's already been priced into the currency," he said. The opposition BJP party, which is currently leading the incumbent Congress party in opinion polls, is widely seen by investors as being more business-friendly.
Khoon forecasts dollar-rupee to reach 64 by the year-end, buoyed by a strengthening greenback as the Federal Reserve moves closer to raising interest rates.
For the currency pair to remain below 60, there would need to be a renewed weakening of the U.S. dollar, he said.
"If we see further signs that the U.S recovery isn't progressing as much as hoped, and the Fed pauses their QE tapering – that will be U.S. dollar negative," he said.
"On the domestic side, if we see a concrete and decisive victory by the BJP, and they start to deliver on the much needed positive reform, there's a possibility of a sharp post-election bounce," Khoon added.