The rand was steady against the dollar in early morning trade on Friday as commodity prices rose and the euro held its gains against the greenback.
"We see the rand/dollar trading in a range of 6.82 to 6.89 for the day," a local currency trader said.
At 08:42 local time, the rand was bid at 6.8415 against the dollar from its previous close of 6.8573. It was bid at 9.8275 to the euro from 9.8058 before and at 11.1186 against sterling from 11.1084 at its previous close.
The euro was bid at US$1.4325 from US$1.4314 before.
Standard Bank's currency strategist Michael Keenan said in a note on Friday morning that euro movements remained pivotal.
"The rand's correlation between the USDZAR and EURZAR exchange rate continues to strengthen. It is approaching its 5-year high and is also above the correlation between the rand and the gold price."
This helped explain why rand bulls were taking heart from the renewed strength of the euro despite the fact that the gold price and other precious metal prices were stagnating, he added.
"This morning, rand bulls breached the key R6.87 level to the downside, which jeopardises our view that the rand will incur fresh selling pressure after what we had thought would be just a bout of profit-taking by rand bears."
It seemed that there had been renewed appetite for SA assets by non-residents, and local exporters had been quick to repatriate their dollar earnings once the rand had touched the psychological R7.00 handle.
"A sustained break of R6.87 would open the door to R6.74. However, if the downward breach of R6.87 proves temporary, a return to R7.00 would become highly likely over the coming week."
Keenan said that concerns about Europe's sovereign debt were the most likely catalyst for renewed weakness in the euro and, in turn, the rand - given that there was no top-tier data scheduled for today.
Meanwhile, Dow Jones Newswires reported that the euro held its recent gains against the dollar in Asia on Friday as investors awaited further developments in commodity and equity markets, European sovereign debt problems and potential euro-zone rate hikes.
The euro gained against the dollar in recent days after it fell sharply earlier in May along with commodity prices, but it was not clear whether the rebound would be sustained in coming sessions or the common currency would resume falling again, said Toshihiko Sakai, senior dealer at Mitsubishi UFJ Trust and Banking Corporation.
"I think investors still have their scenario of a global recovery," Sakai said. "I don't think they have changed that, but they may be adjusting that scenario a little bit."
Falls in commodity and share prices often acted as a drag on risk-sensitive currencies, including the euro.
"The focus is on whether the situation toward risk-taking on the back of rises in U.S. stocks and the stability in oil prices will continue over the next week," said Hideki Hayashi, global economist at Mizuho Securities.
Meanwhile, Barclays Capital FX strategists Paul Robinson and Raghav Subbarao said in a research note that the euro was likely to move higher against the dollar in coming weeks for various reasons, including expectations for fresh European Central Bank's rate hikes.
They said some form of debt restructuring was necessary in Greece, but they did not expect this to happen this year due to concerns over contagion to the other economies with debt issues.
"We view the current levels of the euro/dollar as a buying opportunity although the euro's strength will likely be limited since concerns over the periphery (countries of the European Union) are unlikely to be completely resolved in the near future," they said.
Meanwhile, the Bank of Japan decided on Friday to keep its easy monetary policy on hold despite news the day before that the country's economy contracted at a faster pace than expected in the first quarter due to the March 11 earthquake. Little reaction to the decision was seen in the foreign exchange market.
The BOJ's policy board voted unanimously at the end of a two-day meeting to keep the size of its asset-purchase programme unchanged at Y10 trillion. Kiyohiko Nishimura, one of the central bank's two deputy governors, who called for further easing last month, did not repeat his proposal at the latest meeting.
Bonds mostly untraded in quiet start
South African bonds were mostly untraded in early trade on Friday, with little in the way of news to move the market. The longer-dated R186 was a touch firmer.
By 08:55, the benchmark R157 bond was trading at 7.525 percent from its previous close of 7.540 percent. The R207 was bid at 8.300 percent and offered at 8.275 percent from 8.295 percent and the R186 was bid 8.495 percent and offered 8.475 percent from 8.500 percent.
