The rand continued to firm against the dollar in afternoon trade on Tuesday, pushed primarily by a strong gold price, and a weakened dollar versus the euro.

The rand traded at its best level for 16 months during the course of the day.

At 3.48pm it was bid at 7.5352 to the dollar from 7.5719 at its previous close. It was bid at 10.9135 to the euro from its previous close of 10.8649 and was at 12.4665 against sterling from 12.3745.

The euro was bid at US$1.4472 from US$1.4338 overnight.

Gold broke above the $1000/oz level in early trade and was last at $1001.90/oz.

A local trader said: "We have seen relentless selling euro/dollars today, while gold broke the crucial 1,000 mark. These two factors combined to fuel rand strength.

"It will be interesting to see what happens in the US this evening. If gold prices continue to rise, and the euro breaks 144.50 against the dollar, we will need to break 7.48 against the greenback, but we could see 7.20," he said.

JP Morgan's Niall O'Connor said in a note: "Our focus remains on ZAR following last week's sharp out performance on the back of the sharp rally in gold and the breakout through the 1,000/1,006 resistance area. Note that $ZAR has violated the July low at 7.6127 and now seems set for a closer test of the 7.45/7.40 zone, if not the 7.18 low from 2008.

"Moreover, we see a similar setup for EUR/ZAR, as the 10.86/10.77 support zone can allow for some initial pause, but the overall bias argues for an extension of the ZAR out performance trend seeking the 10.6655/10.54 zone," O'Connor said.

"Also, ZARJPY has extended through the key 12.20 resistance and triangle trendline from the July high. With a five-wave advance from last week's low now complete, we will be looking for corrective pullbacks to enter long positions," he concluded.

Dow Jones Newswires reports that the euro and other higher-yielding currencies traded sharply higher against the dollar Tuesday as risk appetite returned to the foreign exchange market with vengeance.

Investors rode a wave of confidence on positive euro-zone economic data, an overnight stock rally in Asia and Europe and support for continued economic stimulus from G20 ministers.

Also putting pressure on the dollar is gold, which is above $1000 an ounce Tuesday for the first time since February.

Strength in Asian and European stock bourses helped prompt buying in gold, said Larry Young, senior trader with Infinity Futures.

"It appears it was the beginning of some important asset shift changes, which are now also weighing on the dollar," said Scotia analysts.

"This is an important development as it leaves the major dollar downtrend intact and highlights that sentiment remains dollar bearish," said analysts at Scotia Capital in Toronto.

Planets in alignment for yields

Bond yields continued to enjoy the benefits of a strong rand on Tuesday, but an added sweetener came in the form of a better than expected government auction.

By 4.01pm the short-term government R154 bond was trading at 7.210 percent from a previous close of 7.245 percent. The medium-term R157 was at 8.005 percent from 8.045 percent, while the long-term R186 was bid at 8.595 percent from a previous 8.625 percent.

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