The rand was little changed against the dollar in quiet afternoon trade on Friday. Dealers said positions were squared ahead of the International Monetary Fund (IMF) and World Bank meetings in Washington over the weekend.
"Nothing much happened today as the market is still digesting the major move on Tuesday," a local trader said.
At 15:40 local time the rand was bid at R7.8174 to the dollar from its previous close of R7.8399 and Monday's close of R7.9368. It was bid at R10.3127 to the euro from R10.3112 before, and at R12.5860 against sterling from R12.5979 previously.
The euro was bid at US$1.3199 from its previous close of $1.3142 after sinking to a two-month low of $1.2993 on Monday.
News emerged from Citigroup on Tuesday that SA government bonds were entering a monitoring period for inclusion in their World Government Bond Index (WGBI) in October. This saw the rand and local bonds rally significantly, with the currency appreciating 16 cents to 7.82/dollar after the announcement and the bond curve strengthening 21 basis points in the benchmark R157, 25 basis points in the R186 and 27 basis points at the very long end.
The rand bounced off the R7.78 per dollar level resistance level on Wednesday after the JSE released data showing that foreigners bought a net R7.79 billion of South African bonds including repo transactions on Tuesday. This was more than a third of the year to date buying of R22.337 billion of local bonds including repo transactions. In 2011 they bought R37.501 billion of local bonds.
RMB said in its morning report that Thursday's Spanish bond auction had eased jitters about Europe, but the region remained a downside risk.
"After a day that held significant event risk, the rand is only slightly weaker from yesterday's levels: USD/ZAR7.85, GBP/ZAR12.56 and EUR/ZAR10.32. The good news is that the 2- and 10-year bonds were successful in Spain's auction of EUR2.5bn. It is encouraging that demand for sovereign bonds was higher than at previous auctions even though they were executed at a higher yield (5.74 percent for the 10-year issue). The successful auction allayed fears that Spanish banks are running out of cash to buy their sovereign debt. While this is encouraging news, we don't believe it should be read as a signal that Spain's troubles are dissipating. Spanish banks are under severe pressure from rising bad debts and it is unclear how fast support from the ECB's last Long Term Refinancing Operation (LTRO) to Spanish banks will fade. The G20 also underscored the downside risk that developments in Europe are posing to the global economy in a statement yesterday.
"The positive impact of the successful Spanish auction on risky assets was offset by negative economic news flow out of the US. An increase in initial jobless claims added to growing evidence that the labour market is not recovering fast enough to make a serious dent in the unemployment rate. A drop in sales of previously owned homes also served as a reminder that the housing market is still struggling. The oil price has remained under pressure and is set for a second consecutive weekly decline as reduced supply fears and concerns over slowing demand conditions have capped any significant rise in the price. A better-than-expected rise in US crude inventories this week suggested weak consumption prospects in the world's largest oil user," the bank said.
Dow Jones Newswires reported that the dollar was range-bound against the yen during Asian trading on Friday as the market looked to next week's big events, including the Federal Open Market Committee's two-day meeting and the Bank of Japan's policy board meeting, where many expect the Japanese central bank to engage in further monetary easing.
Analysts said yen-selling pressure remained following comments in recent days from top BOJ officials including Governor Masaaki Shirakawa indicating the central bank was willing to undertake powerful easing to meet its 1 percent inflation target.
During the Group of 20 Economies meeting in Washington, IMF Managing Director Christine Lagarde said on Thursday she expected fund resources to be expanded significantly this week.
Japanese Finance Minister Jun Azumi also said the IMF could eventually raise more than the currently targeted $400 billion to boost its war chest against a potential worsening of Europe's financial crisis.
"If an agreement could be reached to contribute $400 billion, it could support the euro," said Sumino Kamei, senior analyst at the Bank of Tokyo-Mitsubishi UFJ.
Bonds boosted by rand, foreign buyers
South African bonds held their firm bias in late trade on Friday, buoyed by the strong local currency and offshore interest, a trader said.
At 15:50, the benchmark R157 bond was trading at 6.450 percent from its previous close of 6.510 percent. The R207 was trading at 7.560 percent from a previous close of 7.580 percent and the R186 bid at 8.115 percent and offered at 8.090 percent from its close of 8.165 percent.