In the domestic markets, investors will await the local inflation and IIP data due post market hours on Friday.
The country's foreign exchange reserves declined by a massive $ 6.24 billion to reach $ 583.945 billion in the week ended February 5, RBI data showed on Friday. The decline was mainly on the account of a fall in Foreign Currency Assets (FCAs) (decreased by $ 4.88 billion to $ 542.338 billion), a major component of the overall reserves.
In the previous week, the reserves had touched a record high of $ 590.185 billion after rising by $ 4.852 billion.
Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
The gold reserves decreased by $1.327 billion to $34.967 billion in the reporting week.
The Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) dipped by $6 million to $1.503 billion.
The country's reserve position with the IMF also declined by $27 million to $5.138 billion in the reporting week, as per the data.
On the other side, rupee darted up 12 paise to 72.75 against the US dollar on Friday, propped up by sustained foreign capital inflows and softening crude oil prices. At the interbank forex market, the local unit opened at 72.79 against the greenback and witnessed an intra-day high of 72.75 and a low of 72.83.
Weekly, the rupee gained 18 paise against the American currency.
"Indian Rupee gained strength amid softening of crude oil prices and steady FII inflows. Additionally, expectation of improved macroeconomic data supported rupee," said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.
Market participants will be keeping an eye on inflation and industrial production numbers and better-than-estimate numbers could extend gains for the currency, forex traders said.
"India CPI data is likely to show that inflation eased and remained under RBI target range of 2-6 per cent in January 2020. However, sharp gains were prevented on the strong dollar. Rupee may trade in the range of 72.50 to 73.20 in next. couple of sessions, "Mukadam added.
Foreign institutional investors remained net buyers in the capital market as they purchased shares worth Rs 944.36 crore on Thursday, according to exchange data.
"The Indian Rupee appreciated on Friday and strengthened this week against the US Dollar supported by equity inflows. However, persistent intervention throughout the week by the Reserve Bank of India capped the currency's appreciation," said Sriram Iyer, Senior Research Analyst at Reliance Securities.
Meanwhile, a weak dollar index has also helped the local unit this week.
"The rupee was also aided by a decline in the dollar index. The gauge is down 0.5 per cent so far this week. The greenback did recover some of its losses this Friday, however the upbeat risk mood, supported by the possibility of more fiscal stimulus in the US, kept the dollar weak this week, "Iyer noted.
In the domestic markets, investors will await the local inflation and IIP data due post market hours on Friday.
According to Rahul Gupta, Head of Research-Currency, Emkay Global Financial Services, global market sentiments are optimistic with world stocks hovering just near records highs on hopes that a $ 1.9 trillion COVID-19 aid package will be passed by US policymakers as soon as this month, just as coronavirus vaccines are being rolled out globally.
Inputs from PTI