The path for Indian rupee and government bonds this week hinges on the geopolitical fallout from the militant attack in Kashmir, traders said.

A day after the U.N. appealed for restraint following Tuesday's deadly attack in Indian-administered Kashmir, India reported an exchange of fire across the de facto border in the disputed region.

In the days since, tensions have risen dangerously between India and Pakistan, which have fought two of their three wars over Kashmir.