Rand may potentially hit R7.70/dollar

Johannesburg - The rand steadied against the dollar on Friday with potential for further gains in the next few days, but the eurozone debt crisis still poses risk for the currency.

The rand hit R7.77 on Thursday, its strongest level in nearly three months, supported by US Federal Reserve’s signal that interest rate will stay near zero for the next two years.

Government bonds also steadied near multi-month highs hit on Thursday in tandem with the rand.

On the bourse, futures pointed to a lower open at 07:00 GMT after the Top 40 - (Tradeable) [JSE:J200] recorded its highest close since May 2008 on Thursday.

The JSE’s Top-40 March futures contract was down 0.6% before the start of trade.

The rand was trading at R7.82 against the dollar at 06:40 GMT, not far from Thursday’s New York close of R7.8240.

“We are back to being a high-yielding currency. The rand looks oversold on a daily basis but there doesn’t seem to be a reversal yet and there’s potential for R7.70,” said Jim Bryson, chief dealer at Rand Merchant Bank.

“Going forward, it’s too early to call but for now, the direction seems to be on the (firming) side. With the euro not out of the woods yet, that might spoil the rand’s party.”

The rand’s gains might hit inflation-linked bonds.

Government is due to offer R800m of the bonds at its weekly auction, whose results will be out after 09:00 GMT.

Demand for the bonds increased late last year as inflation trended up, with expectations the rate will stay outside the Reserve Bank’s 3% - 6% target range until early in 2013.

Absa Capital said in a note with the firming of the rand, inflation concerns may have receded and demand for inflation-linked bonds might not be so strong.

On bonds, the yield on the 2015 bond inched up 0.5 basis points to 6.48%, and that on the 2026 note ticked up by the same margin to 8.235%.