The rand was firmer against the dollar in early morning trade on Tuesday as it tracked a euro that had risen against the greenback in Asian trade.
“Risk is back on,” a local rand trader said.
“It may be difficult for dollar rand to go below 8.00 though. I put the range at 8.00 to 8.10 for the beginning of the trading session,” he added.
At 08:32 local time, the rand was bid at R8.0343 to the dollar from its previous close of R8.0937. It was bid at R10.2204 to the euro from R10.2475 before, and at R12.3383 against sterling from R12.3946 previously.
The euro was bid at US$1.2728 from its previous close of US$1.2664.
Standard Bank said in a morning note that the market's reaction to S&P's and Fitch's ratings decisions had quickly faded.
“Having initially depreciated quite markedly on the back of Fitch's revised ratings outlook last week, the rand recovered most ground on Monday afternoon.
“In fact, the reaction to Fitch's re-rating of SA's outlook and downward adjustment of a number of European countries' ratings proved brief. The European Central Bank's rumoured buying of Italian and Spanish debt yesterday went a considerable way to calming market jitters.”
Meanwhile Dow Jones Newswires reported that the euro rose against the dollar and the yen on Tuesday in Asia as stronger-than-expected figures for China's gross domestic product triggered covering of positions betting on a further decline in the common currency.
China's GDP growth slowed slightly in the fourth quarter, marking an 8.9% rise from a year earlier in the fourth quarter, slower than the third quarter's 9.1% expansion, but higher than the 8.6% growth expected.
The ascent of the euro against the dollar and yen led to the execution of loss-cutting orders placed by market participants betting on a further decline in the single currency, driving the euro even higher, Tokyo dealers said.
Still, in the longer-term, the downward trend in the euro was unlikely to change as the euro zone's economic outlook remained murky and persistent expectations for additional rate cuts by the European Central Bank in coming months, they said.
The market's near-term focus was on Greek debt restructuring talks and auctions by Spain, Greece and the euro zone's bailout facility, the European Financial Stability Facility, which was downgraded on Monday by Standard & Poor's to double-A-plus from triple-A.
“Jittery trading will likely continue regarding (European) tenders,” said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ.
“A sound outcome at a single auction alone won't lead to an overall resolution (of the European sovereign debt crisis),” said Shuichi Kanehira, head of FX spot trading at Mizuho Corporate Bank. “The broader trend is unlikely to change.”
Meanwhile, Japan's Finance Minister Jun Azumi on Tuesday reiterated his concerns about the euro's recent weakness versus the yen, but added he still wanted to “carefully” examine the exchange rate, suggesting Tokyo was not likely to act anytime soon to support the embattled European currency.
Azumi also played down S&P's move on Monday to downgrade the euro-zone bailout fund.
“I don't think this will immediately shake the credibility of EFSF bonds,” he said. - I-Net Bridge