The rand firmed in the morning session on Monday, tracking a stronger euro.

At 08:47 the rand was bid at 7.2917 to the dollar from 7.3040 at its previous close. It was bid at 10.5881 to the euro from its previous close of 10.5724 and was at 11.7338 against sterling from 11.7492.

The euro was bid at $1.4495 from $1.4462 overnight.

A local trader said: "We are tracking the euro this morning with resistance at 7.28 and 7.35/36 topside."

RMB analyst Bulent Badsha said in a morning report that the big theme for the year would be the sustainability of the global recovery.

"Data over December has done nothing to alter the positive tone on this front, either internationally or locally, but at the back of everyone's minds is that we could be in for a slowdown (double dip) later in the year.

"This is bound to create occasional bouts of risk unwinding, as we saw in October, and if the risks play out US dollar/rand could be back at 9.00 quickly enough. We have grown more positive and reflecting this we are now not nearly as bearish on the rand - our view is for 7.25 on US dollar/rand at mid-year and 8.00 at year-end. Our full year-ahead document with forecasts will be released late this week.

Badsha said that the second major theme should be the value of the US dollar. "Collapse or recover is the question. The holidays saw a sharp recovery but the pressure is already back on as weak employment data out of the US questions assumptions that the Fed could hike by mid-year. This is putting fresh downside pressure on US dollar/rand," Badsha said.

"The key range on US dollar/rand remains 7.25 - 7.70, with interim resistance levels at 7.48 and 7.62. Immediate pressure is to the downside but 7.25 has proved hard to break. Remarkably, December reserve data still shows no signs of active involvement from the SARB. Risks to the upside come from euro/US dollar - a break through 1.4267 could be a catalyst for an extension to 1.3856," RMB said.

"Local interest rate expectations meanwhile haven't changed much over the holiday season. We continue to expect the first hike in the first quarter of 2011."

Dow Jones Newswires reported that the euro rose against the US dollar and the yen Monday in Asian trade, as markets cooled off expectations of US interest-rate hikes on the back of dovish remarks from a top Federal Reserve official, coming on top of poor unemployment data on Friday.

The euro extended its rally which started Friday after data showed US non-farm payrolls fell by 85 000 last month, compared with a revised 4000 gain in November. At one point, it hit a three-week high against the dollar at $1.4533, following comments made in Shanghai by James Bullard, president of Federal Reserve Bank of St. Louis, who reiterated the Fed's long-standing view that rates may remain low "for quite some time" in the US

However, the euro lost some momentum and dropped back below $1.4500 shortly thereafter, as Bullard later said the US isn't likely to alter its existing policies in response to the weaker-than-expected payrolls data. He added that US jobs will start growing in the first half of the year.

The euro last traded at $1.4499 at 05:03 GMT, up from $1.4414 late Friday in New York trade. It traded at ¥133.84, up from ¥133.48, with Japan's markets closed for the Coming of Age holiday.

At the same time, the dollar traded at ¥92.27 from ¥92.59.

Bullard was the first Fed official to make public comments after Friday's data hit rate-hike bets hard. The July 2010 fed-funds futures contract last priced in only a 20 percent chance for the Fed to lift the funds rate to 0.5 percent at its late June policy meeting. That's down from a 30 percent chance just before the jobs data came in, and a 78 percent chance on December 31, the final trading day of 2009.

Bonds off to a quiet start

It was a slow start to the week on the South African bond market early Monday, with only the R157 bond having traded as players find their way back to their desks after the December holiday.

With little in the way of local data this week, conditions are likely to remain fairly subdued, although tomorrow sees the first of the government weekly bond auctions.

By 08:49 the short-term government R154 bond was untraded, bid at 7.525 percent and offered at 7.375 percent after closing at 7.425 percent on Friday and the medium-term R157 was yielding 8.590 percent from its previous close of 8.550. The long-term R186 was also untraded, bid at 9.310 percent and offered at 9.280 percent from 9.255 percent before.