JOHANNESBURG: South Africa's currency weakened early on Monday, but remained stronger than the psychological and technical support area of 9 to the dollar, suggesting rand bears will be on the back foot for the session.
Signs that investor confidence was returning to the euro zone, a major trading partner for local manufacturers, propped that region's currency against the dollar, allowing investors to buy into risky-but-higher yielding emerging markets such as South Africa.
The rand was at 8.9650 to the dollar at 0636 GMT, compared with a close of 8.95 in the New York market on Friday.
The unit broke through 9 rand on Wednesday to a four-year low, but the retreat looks to have lost the momentum. Analysts say the rand will have to break above the 9.10-9.20 area to trigger the next round of selling.
"The about-turn ahead of the 9.10-9.20 resistance area and subsequent push below 9.00 is helping to confirm the bearish divergence signal we were highlighting," said Judy Padayachee, technical strategist for Absa.
The "divergence signal" indicated that the momentum of dollar bulls was slowing last week even while the price of the dollar was still rising.
Absa's Padayachee said dollar/rand should stay within a 10 cent range of 8.90-9.00 on Monday and for the next two weeks move in an up-and-down pattern towards 8.75 levels.
Yields on government debt nudged higher but looked to come down from last week's levels as foreigners took a break from selling South African debt.
The 2015 and 2026 government benchmark yields gave up 1 basis point each to 5.4 percent and 7.375 percent respectively.
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