(Reuters) - The Indian rupee firmed slightly on Monday, in tandem with the strength in the broader markets, although gains were capped as the dollar index barely budged.
The partially convertible rupee ended at 82.6500 per U.S. dollar after touching a high of 82.64 during the session. It closed at 82.8575 on Friday.
Asian currencies and equities rose after U.S. data, late on Friday, signalled domestic inflation was cooling, which could likely discourage the Federal Reserve from hiking interest rates sharply.
Stock markets were particularly buoyant, with Indian shares rallying more than 1%.
However, another dataset showing U.S. personal income rose more than expected countered those views, which kept the dollar index flat and pushed up benchmark Treasury yields .
That weighed on the rupee, said a Mumbai-based trader.
The rupee has struggled to break out of its narrow trading range over the past week, with any depreciation curbed by dollar sales around 82.85-82.90 levels.
Some traders said those sales were conducted by state-run banks on behalf of the Reserve Bank of India (RBI) to likely keep the currency from weakening past the key psychological level of 83 per dollar.
"Due to holidays this week, most days will be quite low on volumes. We're not expecting any volatility ... and it looks very unlikely the currency will breach 83," said Gaurang Somaiya, FX and bullion analyst at Motilal Oswal Financial Services.
However, the beginning of next year could see volatility creep back in, with Chinese economic data becoming crucial, Somaiya added.
"If the rupee manages to break the lower end of its 82.20-83.20 range, we could see some appreciation in the currency."
Meanwhile, a surge in crude oil prices has also weighed on the currency, as Brent crude futures jumped more than 6% last week to $84 per barrel.