The rand was a fraction firmer in the morning session on Tuesday with a bias, however, towards 7.60 and then 7.65, tracking the dollar amid messy markets, a local trader said.

At 9.00an the rand was bid at 7.5573 to the dollar from 7.5820 at its previous close. It was bid at 11.2925 to the euro from its previous close of 11.2790 and was at 12.3773 against sterling from 12.3627.

The euro was bid at $1.4922 from $1.4869 overnight.

A local trader said: "The Dow and euro retraced overnight. Markets are messy at the moment and the rand has the potential to go to 7.65 against the dollar.

"I don't think that the budget should have too much impact on the spot currency today unless something out of the ordinary is announced," he said.

RMB analysts John Cairns and Nema Ramkhelawan said the local unit has adjusted higher following several days of range-bound trade. "Faced with modest event risk, the market appeared reluctant to sell the US dollar further, which stalled the recent rally in equity markets and restricted further emerging market currency gains. The US dollar looks likely to maintain a slight weakening trend this week (with the potential to break 7.60 toady), as markets tread cautiously ahead of the US GDP figures on Thursday. Volatility should, however, remain relatively subdued.

The analysts pointed to a marketplace riddled with rumours. "If the market's knee-jerk reaction to the alleged expiration of an $8000 federal tax credit for first-time home buyers is anything to go by, we are likely to see panic in response to rumours relating to the premature extraction of any stimulus packages affecting the broader US economy.

"Even though the report detailing US lawmakers' intentions with regards to the tax break was quoted incorrectly, it set the cat among the pigeons and resulted a widespread sell-off financial shares. Despite improving fundamentals, particularly in the US housing market, the market's response clearly demonstrates investor's chronic sensitivity to news events. This follows an opinion piece published in a Chinese newspaper yesterday, which encouraged reserve diversification and resulted in an extension of short US dollar positions," RMB said.

"Event risk is fairly distributed today. Locally, SA Finance Minister Pravin Gordhan will deliver his maiden Medium Term Budgetary Policy speech later this afternoon. While we expect a sizeable revision to the budget deficit, the statement is unlikely to provide any revelations with regards to the rand.

"Although the Minister Gordhan might comment on the local unit's recent strength and allude to possible measures to curb its effect on the economy, the implementation thereof seems unlikely at this stage. US dollar/rand might exhibit volatility during the address but should not move significantly in response to the statement," Cairns and Ramkhelawan said.

Dow Jones Newswire reported that the dollar rose to a fresh five-week high against the yen before losing some of its gains in Asia on Tuesday, as long- term US interest rates remained on an uptrend and a downturn in share prices raised demand for the safe-haven US currency.

"The trend is still for the dollar's upside," said Hideki Amikura, a senior dealer at Nomura Trust and Banking.

With the gap between US and Japanese interest rate being one significant mover of currencies, market participants are focused on a series of US government debt auctions this week totalling $123-billion in value, including a sale of $44-billion two-year notes later on Tuesday.

Bond market cautious

Bonds were weaker in opening trade on Tuesday with local markets cautious ahead of the Medium Term Budget Policy Statement (MTBPS), which will be presented in Parliament on Tuesday afternoon.

By 9.25am, the short-term government R154 bond was bid at 7.505 percent from a previous close of 7.410 percent. The medium-term R157 was at 8.745 percent from 8.700 percent, while the long-term R186 was bid at 9.355 percent from 9.305 percent.

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