Johannesburg - The rand held near a one-week high and above a key resistance point in early Tuesday trade and looked likely to break that level if economic growth data overshot market expectations.
South Africa releases fourth quarter GDP data at 11:30, the final piece of the economic growth jigsaw for 2012.
Economists expect growth to have picked up to 1.6% on a quarter-on-quarter basis, from 1.2% in the third quarter.
The statistics agency will also give the preliminary overall growth rate for 2012, a figure that is likely to influence the Treasury's growth and budget deficit calculations ahead of the 2013 budget speech on Wednesday.
By 08:51, the rand was at R8.8590/$, not far off its close in New York on Monday.
"Any move in the rand is reflected in the euro. The Italian elections are causing real chaos in the forex markets. Expect volatility in the major currencies, reflected on the rand through our crosses," said Jim Bryson of Rand Merchant Bank, referring to Italy's apparent election gridlock.
However, the rand is unlikely to shift out of its R8.80 to R9.0 range unless GDP data is so far from expectations that investors start to factor in a local interest rate move next month.
"If it's that bad that we can start factoring in an interest rate cut, then that GDP data will move things," Bryson said.
The R186/R157 bond yield spread rose to a week high of 197 basis points. Dealers see the curve staying at elevated levels because of expectations of increased issuance from government, normally at the longer end of the yield curve.
"The view of subdued growth and in turn widening pressure on the budget deficit implies the risk that a higher borrowing requirement will be priced in in coming weeks," Tradition Analytics said in a note.
The yield on the 2026 issue dropped 4 basis points to 5.21%, while that on the 2015 issue gave up 2.5 basis points to 7.19%.