The rand was firmer against the dollar in early morning trade on Wednesday, following the previous day's volatility caused by Switzerland's decision to peg the franc to the euro and when the local currency followed that pattern of other emerging markets, losing around 0.7% on the day.
"The rand is still tracking the euro which has improved slightly from its overnight levels," a local currency trader said. "The decision in Germany today by its top court on the legality of the European rescue fund will have important implications for the euro - so we'll be watching that," he added.
"Initially I see dollar rand in a range of 7.10 to 7.20, but we'll see what happens later."
At 8.41am local time, the rand was bid at R7.1213/$ from its previous close of R7.1701/$. It was bid at R10.0123/€ from R10.0379/€ before, and at R11.3794/£ from R11.4368/£ previously. The euro was at $1.4070 from $1.4000 before.
RMB analysts said in a morning note that after several failed attempts to stem a rising tide of inflows through active liquidity management, the Swiss National Bank (SNB) had set an explicit target for EUR/CHF at 1.20.
"Game on. Despite acting of its own accord, to ward off a recession, the SNB has opened the way for a series of competitive devaluations by central banks across the globe."
RMB said that Japan would be an obvious second, having faced a similar onslaught by investors following the recent financial market stress. Local officials had repeatedly sounded their readiness to employ further intervention.
"The upshot is that aggressive action by Swiss and Japanese authorities could redirect capital flows to EMs. Characterised by favourable growth prospects and/or positive yields, EMs could eventually adopt a similar rhetoric to the Swiss and Japanese as greater flows begin to permeate their markets. Brazil, who stoked fears of a currency war at the end of last year, has already threatened greater action to curb rapid BRL appreciation."
RMB said that the implications for the rand had to be seen against the currency's nonchalant response to the SNB's startling announcement.
"South Africa is a minor competitor in the global currency war, with neither authority nor ammunition to affect matters greatly. This means that the SNB's action is unlikely to force the SARB's hand."
The central bank had in the past expressed a reluctance to adopt unconventional measures to limit capital inflows, due to limited success in compatriot countries.
"If anything, the move bolsters our view of sustained ZAR strength. USD/ZAR's trading momentum is biased to the downside today as the market continues to digests the SNB's news."
RMB said there was also considerable doubt over the effectiveness of the SNB's move.
"The latest round of intervention might prove as futile as the methods employed in the 1970s when the CHF appreciated by 60%.
"The recent spate of events could elicit a stark response from the ECB at tomorrow's monthly news conference. Though a rate cut is probably not on the cards, the bank is likely to adopt a considerably softer tone."
Meanwhile Dow Jones Newswires reported that the in foreign exchanges on Wednesday, both the dollar and the euro took a breather against the Swiss franc after rising sharply on the SNB's currency action on Tuesday.
The euro - which was initially under pressure against the greenback on continued worries over the Greek debt problem - moved up, however, after the strong rise in Asian equities.
