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Johannesburg - The rand weakened 1% against the dollar on Tuesday on increasing import pressure after the holiday season, while anticipation of a domestic interest rate cut this month boosted bonds.
In late afternoon trade, the unit was R6.7/$ compared to Monday's close at R6.63/$. Bond yields fell sharply, with the benchmark 2015 ZAR157= shedding as much as 21 basis points. The yield was last at 7.225%, down 19.5 basis points on the day.
The rand was described as "overbought" in thin trade.
"It has traded as high as R6.66 today against the dollar and it doesn't seem to want to go weaker or higher," a currency analyst said.
"We see the rand looking to break R6.80 in a week or so," the analyst added.
However, the long-term trend was still towards rand strength.
Commodities were off their best levels, gold was selling off and the euro was strengthening, he said.
Dow Jones Newswires reported that a broadly positive tone dominated foreign exchange markets in European trading on Tuesday, with upbeat sentiment helping the euro and pound gain ground against the dollar, while the safe-haven yen and Swiss franc slid as trading volume started to pick up after the holiday break.
"After a slow start, momentum in the currency market is starting to build as normal trading activity resumes after the Christmas break."
The euro, which now trades as a 17-country currency after Estonia gained full membership on January 1, was mostly higher across the board, including against other stronger currencies in the region, such as the Swedish krona.
The single currency was also notably higher against the Swiss franc, reversing a string of record highs the safe-haven currency hit over the Christmas period.
"With equities higher and the market in a risk-on mood, that's a good environment to unwind positive bets on the Swissie," said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole in London.
