The rand remained on the front foot in noon trade on Friday having firmed sharply on Thursday, but analysts cautioned that some importer interest could be expected at current levels.

By 11.45am the rand was bid at 7.7219 to the dollar from a previous close of 7.7320. It was bid at 12.1234 to the euro from a previous 12.1645 and at 15.3035 against sterling from 15.3495 before.

The euro was bid at US$1.5695 from US$1.5695 overnight, while gold was quoted at $934.42 a troy ounce from $932.35 overnight.

ETM analysts said in their morning report on a trade weighted basis, the rand made a spectacular recovery yesterday, recovering almost 2.1 percent. The local unit strengthened against almost all currencies including a firmer USD to reduce the depreciation for the year-to-date back down to 18.7 percent.

"Again it seems that the outlook for interest rates had a major role to play in the ZAR's performance this week and this was evident in the timing of the ZAR's strength yesterday," ETM added.

Comments by ECB President Trichet which were distinctly less hawkish than at the previous MPC meeting and where he signalled that the ECB had no bias gave rise to speculation that the ECB would pause in their monetary tightening amid a global slowdown in GDP growth.

Add to that the very poor US data which suggests that the US economy is still headed for a recession and that the Fed would prefer to delay monetary tightening for as long as possible and a further widening in interest rate differentials between SA and its major trading partners is inevitable, ETM said.

"Technically, the USD-ZAR is showing signs of extending its current phase of recovery in the next few weeks. Traders are however reminded that much of the support has come from foreign selling in US or overnight trade and that this will be absent today as the US celebrates the 4th July Independence Day," they said.

For today, they expect some importer interest following the overnight strength in the rand and this could help the USD-ZAR stage a modest rally back towards levels of 7.80 or just above.

RMB analysts said in their morning report that it had been surprising to see the USD/ZAR fall sharply, all the way down to 7.70, especially after the weakness on the JSE yesterday.

"Rumours have been doing the rounds about a large corporate deal going through the market, but even so the ZAR is looking extended. Only if EUR/USD can break through 1.6000 next week could we see USD/ZAR at 7.50 but this risk seems to have diminished," they said.

For now, given the overextended move and the US Independence Day holiday today, RMB expects the rand to trade in a 7.70 — 7.85 range with an upside bias.

Dow Jones Newswires reports that the dollar is losing some of its upward momentum in Europe Friday as Asian and European equity markets fall, risk aversion continue to rise and oil prices rally back up close to their recent highs.

The US currency had initially got some help from a combination of a less hawkish than expected European Central Bank and from U.S. employment that didn't prove as bad as many feared.

Bonds stay firm on rand

Bonds retained their firmer tone on Friday amid a stronger rand and a lack of liquidity.

By 11.45am the short-term government R153 bond was at 11.570 percent from its previous close of 11.645 percent, while the medium-term R157 was bid at 10.510 percent from a previous 10.610 percent. The long-term R186 was bid at 10.260 percent from a previous 10.355 percent.

I-Net Bridge