Johannesburg - The rand drifted off its best levels by midday on Tuesday, but trade was thin ahead of Fed chairman Ben Bernanke's speech to Congress' Joint Economic Committee later in the day.
At 11:49 local time, the rand was trading at 8.2529 to the dollar from its previous close of 8.2837. It was trading at 10.8857 to the euro from 10.9271 before, and at 12.6886 against sterling from 12.7787 previously.
The euro was at $1.3197 from $1.3192 before.
A local dealer said that the rand drifted gradually lower, but in a lacklustre session. He said that the local currency continued to be at the mercy of the euro which hovered around the 1.32 level against the dollar, "which hasn't assisted the rand's cause."
Forex strategists at Standard Bank said in a morning report that equity markets continued to sell off, and volatility was at highs last seen in early August.
"The reasons for this risk aversion, namely dismal global growth and intensifying EU sovereign debt risk, are showing no meaningful signs of improvement."
"Our calls for participants to buy dollars at R7.75 last week, with a target of R8.30 in mind, have panned out. However, with risk aversion rising, we now argue for an upward breach of R8.30, which would open the door to R8.49 (the prior high on 22 September), followed by R8.57. But if R8.30 proves too stubborn for rand bulls, we would foresee a retrace to R8.16," the strategists said.
RMB analysts said in their morning note: "We're now getting to a point where Europe needs to make some tough decisions. Namely, will they finally accept fiscal union and so guarantee Greece's debts, or will they let Greece go and throw their efforts into trying to save the banking system? Markets are starting to think the latter but policy makers seem two steps behind the game, trying vainly to avoid reality."
The analysts said that a key question was the role the ECB would play, particularly whether it would accept monetising some of the sovereign debt.
"As a start they should ease monetary policy this Thursday but they are reluctant to do even that."
RMB pointed to the key event on Tuesday, namely Fed Chairman Bernanke's speech to Congress' Joint Economic Committee.
"We will continue to watch mainly EUR/USD for direction, while keeping an eye on the global equity markets," the financial services group said.
In terms of data, Dow Jones Newswires reported that the euro zone PPI fell by 0.1% on the month in August after rising by 0.5% in July. "The outcome is not too far from market expectations for a 0.2% monthly decline in the overall index," said Newedge.
