Graphic: renjith krishnan

Johannesburg - The rand was steady against the dollar in early Wednesday trade and looked set to test the 8.80 resistance level should there be no negative headlines out of the euro zone in the session.

At 08:50 SA time, the local currency was at 8.8340 to the dollar, not far off a 8.8250 close in New York trade on Tuesday.

The unit traded in a 10 cent range in the previous session, gyrating with global risk sentiment dictated mainly by political risk sentiment in the euro zone.

“We could receive some relief from the volatility today given the empty data and events calendar. From a rand perspective, this may allow an underlying positive trend to shine through,” Rand Merchant Bank said a note.

Analysts say the returning offshore appetite for South African debt, averaging about 1 billion rand a week, is helping to support rand bulls.

Bonds were firmer, helped by a solid auction on Tuesday as local banks bought government paper to cover short positions.

Yields were down one basis point to 5.32 percent on the 2015 bond and dropped two basis points to 7.335 percent on the 2026 issue.

“Looking at the rand, the world seems to be back on a 'risk on' mood. US Treasuries are selling off as guys don't need the safety any more,” a local bond dealer said.

“Yields might just drift lower. We're starting to see some demand for our bonds - more foreign participation with guys buying duration. Guys will be looking to see what the currency does.”

Dealers say if the rand pushes below 8.80, that could take yields on the R186s to the mid-7.20 percent level. - Reuters