The rand was steady by noon on Tuesday on the back of a strong euro in what a local trader said was a quiet session with "no real drivers".

However, the trader noted that there was downside potential provided the currency remained below 7.94.

At 11.49am the rand was bid at 7.8610 to the dollar from its overnight close of 7.8250. It was bid at 11.1983 to the euro from a previous 11.1325 and at 12.9180 against sterling from 12.9403.

The euro was bid at US$1.4221 from US$1.4227 overnight.

"The rand is holding steadily. It's a quiet day, we have been hanging around the 7.90 level," the trader said.

"The euro is a little higher, there are no real drivers for the rand. If we hold below 7.94, we could drift to 7.82.

"There is potential to the downside provided we remain below 7.94," he said.

In his morning report earlier, RMB analyst John Cairns said that the rand had strengthened remarkably following a series of fortunate events.

"Gill Marcus's appointment as the new SARB governor was well received by the market as her selection is indicative of the government's commitment to business-friendly policies," he said.

Cairns said a stronger ZAR was also a reflection of improved market sentiment.

"Internationally, the USD continues to fade against a basket of major currencies as global pressures abate and policymakers outline the way forward. EUR/USD has surged to 1.42 as global risk appetite improves, while US equities jumped on news that US lender CIT Group Inc secured a US$3 billion credit facility from bondholders, which would help the company avoid bankruptcy," he said.

"With little in the way of event risk, it is unlikely that USD/ZAR will gyrate significantly today. We expect trade to be rather subdued and USD/ZAR to drift within a narrow range of 7.75 - 7.95," Cairns said.

Dow Jones Newswires reports that risk appetite is recovering - pushing the dollar and yen lower again in Europe on Tuesday - after an article in the Wall Street Journal by Federal Reserve Chairman Ben Bernanke had initially turned investors towards safe havens.

In the article, discussing the Fed's possible exit strategies from quantitative easing before it poses an inflationary threat, Bernanke made it clear that he isn't expecting an early recovery.

"Economic conditions are not likely to warrant tighter monetary policy for an extended period," Bernanke said.

Coming at a time when many in the market have been optimistic both about a recovery as well as second-quarter earnings, his remarks were seen as a warning that the market might be getting ahead of itself.

This immediately led to a rise in risk aversion and profit taking on some of the more optimistic positions that had been built in recent days.

"His prescription of rate hikes and money market operations to soak up liquidity, ahead of unwinding asset purchases, inevitably prompted the market to think about when this might occur. This should tend to limit risk appetite and the rebound in high-yield commodity currencies," said the currency strategy team at The Royal Bank of Scotland.

Bonds quiet after auction; eye rand

Bonds retained their slightly softer tone by midday on Tuesday in what traders say is a very quiet market.

By noon the short-term government R153 bond was bid at 7.210 percent from a previous 7.185 percent. The medium-term R157 was at 8.530 percent from 8.510 percent, while the long-term R186 was bid at 9.040 percent from 9.010 percent before.