Graphic: renjith krishnan

The rand was a tad firmer against the dollar in early trade on Friday as it tracked a buoyant euro and as risk-on trade returned.

“After the announcement from the FOMC earlier this week, risk-on trade is back and commodity currencies will do well,” a local currency trader said.

“For the rand, the fly in the ointment is the euro - as long as there are no bad headlines from the eurozone, the local currency should thrive.”

At 08:45 local time, the rand was trading at R7.8095 to the dollar from its previous close of R7.8192. It was trading at R10.2311 to the euro from R10.2301 before, and at R12.2426 against sterling from R12.2495 previously.

The euro was trading at US$1.3108 from its previous close of US$1.3087.

RMB said in a note on Friday morning, that the rand finally experienced a good move yesterday with the dollar/rand dropping all the way to 7.79. There had also been some gains on the other crosses, notably the British pound and yen and even compatriot currencies such as the Aussie dollar.

RMB added that euro/rand had also pushed lower, but a break of the 10.20 level was a major piece of the puzzle that needed to be in place to keep rand gains going.

There were tentative signs that a different piece of the puzzle was starting to fall into place, RMB said.

“Foreigners were aggressive buyers of our bonds yesterday and while the data is exceptionally volatile, you can start to see a trend towards buying. This pattern is more evident in the EPFR data, which showed that international investors turned aggressive buyers of emerging market bonds in the week ended Wednesday.”

RMB said the rand's short-term moves would depend mostly on euro dollar, which had fared well after the dovish Fed announcement.

“Event risk is largely confined to this afternoon's US 4Q11 GDP number. Expectations are that the world's largest economy ended the year on a very strong note.”

Meanwhile Dow Jones Newswires reported that the dollar fell further against the yen during Asian trading on Friday as it struggled to recover from the US Federal Reserve's surprising announcement on Wednesday that it planned to hold rates exceptionally low until at least late 2014, while attention gradually shifted back to on-going Greek debt talks.

Analysts said that while the impact of the Federal Open Market Committee's interest rate projections was lingering, the focus of the market was also back on the eurozone crisis, notably Greece's on-going debt negotiations and Portugal's worsening debt situation.

The market would closely monitor what European Central Bank President Mario Draghi had to say during a speech later in the day.

“With uncertainty over the future developments in the European sovereign debt crisis, the euro will continue to fall,” said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ, adding that attention would also be given to Monday's European Union summit meeting and whether progress would be made on a proposed EUR100 billion debt write down between Greece and its private-sector creditors.

Portugal was also in the spotlight, with The Wall Street Journal reporting that investors, economists and politicians are becoming concerned the country will struggle to refinance the equivalent of US$11.64 billion in debt due in 2013.

The market would also keep an eye on US gross domestic product figures for the fourth quarter of 2011 to be released later in the day. A Dow Jones survey of economists expected an annualised 3.0% growth rate compared with 1.8% in the previous quarter.

Kengo Suzuki, forex strategist at Mizuho Securities, said that strong US growth figures could improve investor sentiment and lead to further dollar selling, although he added that market reaction to the figures was likely to be limited. - I-Net Bridge