The rand was a tad stronger against the dollar early on Friday morning after the currency lost a bit of momentum on the back of US GDP data.

At 9.01am the rand was bid at 7.7263 to the dollar from 7.7308 at its previous close. It was bid at 11.4683 to the euro from its previous close of 11.4385 and was at 12.7845 against sterling from 12.7705.

The euro was bid at $1.4830 from $1.4836 overnight.

"The dollar generally pulled back on the GDP data, the rand benefited and that is why we are pretty much stronger against the dollar," a local trader said.

"I don't expect much for the day, the market will probably take a breather. I think we are probably reaching the bottom. I think we will stay in a range of about 7.70 7-80-7-82," he said.

RMB analysts John Cairns and Nema Ramkhelawan said that after taking a moment to ponder recent events, investors have returned to the market enthused by the US Commerce Department's confirmation that the world's largest economy emerged from the depths of recession in 3Q09.

The analysts said although personal consumption expenditure, which constitutes almost 70 percent of US GDP, increased by 3.4 percent, the outlook for consumption remained rather bleak given a fall in real disposable income by 3.5 percent and drop in the savings rate to 12-month lows.

"Having weakened to 7.86, the ZAR forged new gains against the USD and recovered to around 7.74 despite dismal local data which showed a continued deterioration in SA's labour market. The local unit should remain elevated above the 7.70 level today given an array of event risk.

"While favourable global determinants, powered by greater risk appetite and month-end flows, might support the local unit at current levels and possibly encourage a slight strengthening in the ZAR, the outcome of local trade data could potentially offset some of the gains and generate greater volatility.

"Our expectations regarding the trade balance are far more bearish than the market, as we estimate a widening in the deficit to 2.5 billion rand (mainly due to a larger mineral products deficit, on account of higher oil/oil product imports) compared to a consensus forecast of minus 1 billion rand," said Cairns and Ramkhelawan.

They noted that the release of personal income and spending data in the US could provide relief to the USD after it reassumed its weakening trend yesterday. The outcome of the data is unlikely to inspire overwhelming confidence in investors, as it is largely expected to remain flat compared to previous months. Nevertheless, the euphoria generated by the US GDP figure is likely to linger today and encourage further risk-taking.

Dow Jones Newswires reported that the euro is nudging higher against the US dollar, helped by the stock market gains.

"The US GDP numbers were strong enough to convince people the global economy is still moving on, but not strong enough to make people think the US economy is charging to the front," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

"Good news for the US is still bad news for the dollar," said Daniel Katzive, currency strategist at Credit Suisse in New York.

"The major millstone hanging around the economy is the weak labour market," said Brian Dolan, chief currency strategist at Forex.com.

"Jobless claims are still highly elevated. It does keep the overall outlook on the soft side," which could mute gains in the euro and other higher-yielding currencies, he added.

RBC's Watt said the euro could rise back to recent highs around $1.5000 in coming sessions given the pressure on the US dollar when the market is favourably disposed toward risk.

"Everything comes down to the overall risk backdrop," Watt said. "If the risk backdrop is consistent with people wanting to be long risk, than that's just where the market's going to go and the US dollar is just going to continue getting beaten up," he said.

Bonds continued firmer in early trade on Friday as the flow-through from rate cut positive data on Thursday persisted.

A dealer said that Eskom's discussion paper later today on tariffs would be closely monitored at the long end of the market.

By 9.08am, the short-term government R154 bond was bid at 7.190 from a previous close of 7.160 percent. The medium-term R157 was at 8.470 percent from 8.500 percent, while the long-term R186 was bid at 9.075 percent from 9.100 percent.

AFP

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