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Fresh FIIs' inflows for upcoming IPOs as well as lower crude oil prices are expected to strengthen the Indian rupee during the upcoming week.

However, concerns over Covid-19 variant -- Omicron -- will keep the Indian rupee's strength in check.

"Last week of December is strong for rupee and Indian equities on a last 10-year track record," said Sajal Gupta, Head, Forex and Rates at Edelweiss Securities.

"Oil prices are expected to be below $80 per barrel in near future on a slow down in demand on back of Omicron re-emergence. Possibility of bond index inclusion and IPO flows shall be helpful."

Last week, the rupee covered lost ground on the back of decisive intervention by the RBI and slowed FPI redemption in Indian equities.

Gupta expects Indian rupee to test 74.50 this week on a strong note.

Rupee had closed at Rs 75.03 to a USD on Friday after a strong show.

"On the domestic front, investors will be keeping an eye on the fiscal balance number and increased expenditure could restrict sharp appreciation for the rupee," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

"FII participation has been subdued in the last few sessions, but increased inflow as we get into the New Year could further support the currency."

Market participants are expected to track macro-data such as the Index of ECI (eight core industries) and fiscal deficit numbers which will be released during the trade week starting December 27.

Somaiya expects the USDINR (Spot) to quote in the range of 74.70 and 75.80 next week.

According to Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities: "As it's a holiday season in the US, most major currency pairs are going to trade in a narrow range for the next few sessions."

"Rupee is likely to trade in a narrow range between 74.8 to 75.3 for the next few sessions."