The Indian rupee rose to its highest in more than a week after gaining for a third consecutive session on Friday, helped by dollar sales by custodian banks and gains in the euro.
The rupee gained 1.1 percent for the week, posting its best weekly gain since the week ended on Jan. 18 as part of a powerful global risk rally, although U.S. monthly employment data due later in the day will be keenly watched.
At home, investors are expected to shift their attention to the industrial output data on Tuesday and inflation data on Thursday, as the reports will come ahead of the Reserve Bank of India's policy review on March 19.
The RBI last cut interest rates in January, but expectations are growing for another easing move given the slowdown in economic growth.
"Rupee should hover between 54 to 54.40 next week, especially if data comes in largely in line with expectations," said N. S. Venkatesh, treasurer at IDBI Bank.
"If factory growth is not too good, rate cut bets will go up and bring in more inflows. But I do not expect rupee to rise above 54 next week as importers will step in there," he added.
The partially convertible rupee closed at 54.2850/2950 per dollar versus its previous close of 54.56/57. The rupee rose to as high as 54.27 during the day, its highest since Feb. 28.
The rupee's gains came as Indian shares rose to their highest close in about a month as rate cut hopes boosted lenders.
Traders also cited good inflows related to Power Grid Corporation of India's 19.90 billion rupees ($364.90 million) bond issue, while India raised $56.84 million by selling some of its shares in state-run Rashtriya Chemicals and Fertilizers Ltd (RCF).
In the offshore non-deliverable forwards, the one-month contract was at 54.69 while the three-month was at 55.30.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 54.54 with a total traded volume of $4.24 billion.