The rand was firmer in early trade on Tuesday, and for now is back just below the R8 per dollar level, but analysts caution that the unit remains vulnerable to events in the euro zone.
At 8.30am local time, the rand was bid at R7.9602/$ from its previous close of R8.0293/$. It was bid at R10.7730/ from R10.8658/€ before, and at R12.3922/£ from R12.4957/£ previously. The euro was at $1.3537 from $1.3514 before.
A local trader said the rand had come off its worst levels along with the euro, and the main driver will continue to be a possible solution to the euro crisis.
"We will continue to be driven by any news from Europe," he said.
He added that he expected the recent wide range to prevail, with good support for the rand at 7.85 and the top of the range at 8.35.
RMB analysts said in their morning report that the global uprising against Eurozone policymakers over the weekend appears to have prompted a series of bold reforms to allay market anxiety. On the face of it, equity and currency markets appear stronger but the extent of intraday moves, particularly on USD/ZAR, reflects immense uncertainty.
"Though slightly stronger, USD/ZAR is still vulnerable to considerable weakness in the near-term as scepticism over Europe's ability to curb the crisis prevails. Broad trading ranges are likely to be sustained, though upside pressure should abate as event risk subsides and conditions begin to normalise. In other words, once a firm resolution to the debt crisis is found," they wrote.
Dow Jones Newswires reports that the euro held onto its overnight gains in Asia Tuesday on the back of hopes for co-ordinated action to address the European debt crisis, but traders and analysts said a lack of concrete decisions on how to tackle the continent's problems means the crisis is far from over.
The euro is returning to normal after the recent selloff, which went too far," said Kuniyuki Hirai, manager of the foreign exchange trading department at Bank of Tokyo-Mitsubishi UFJ.
The single currency was bolstered overnight by a report that European officials are developing a plan to use euro zone bailout funds to shore up European banks. Speculation that the European Central Bank will inject more liquidity into the banking system, or cut the bank's key interest rate at its October's policy-board meeting, also helped improve sentiment toward the euro.
Broad gains in Asian shares Tuesday also fueled appetite for buying riskier assets.
"But no concrete decision has been made with regard to the euro zone debt crisis," Hirai said. "It's all based on speculation."
