(Reuters) - The Indian rupee strengthened on Friday, but hesitated to firm past the key 81.10 level, trading broadly in line with its Asian peers, as the U.S. dollar remained muted.
The partially convertible rupee finished at 81.12 per dollar, compared to its previous close of 81.36. For the week, it gained 0.25%
"Since January we've seen outflows in equities, yet the rupee has appreciated due to corporate inflows coming in," said Arnob Biswas, head of FX research at SMC Global Securities.
In the near-term, more such flows are expected and the rupee will likely head towards 81 per dollar, Biswas said, adding that traders with long dollar positions may begin to unwind them.
Market participants will be watching out for any Reserve Bank of India (RBI) action around these levels to gauge where the next support lies.
Meanwhile, most Asian emerging market currencies gained as the dollar index suffered overnight after U.S. housing data showed a decline.
A flurry of weak U.S. data this week has brought recessionary concerns to the fore, while at the same time, markets are trying to assess what the Federal Reserve's next move is going to be.
The Fed hiked interest rates by 50 basis points (bps) in December after four straight 75 bps increases, while the central bank officials have remained hawkish.
Investor focus will now switch to the Fed's policy meeting at the beginning of next month, as well as the union budget presentation in India on Feb. 1.
Meanwhile, Indian rupee premiums, already hovering at two-month highs, are likely to climb more on expectations of intervention by the RBI and a less-hawkish outlook from the U.S. Fed, analysts said.