JOHANNESBURG: South Africa's rand strengthened in early trade on Friday as firm commodity prices and a surprise interest payment by China Evergrande Group late on Thursday brought confidence back to emerging markets.
But a strong dollar driven by healthy earnings in the U.S. kept the local currency in check.
At 0640 GMT, the rand was trading at 14.63 against the dollar, 0.27% firmer than its previous close and on path to end the week almost flat after flirting with highs of 14.39 mid week.
The currency usually benefits when investors are willing to take on more risk in developing countries.
With stronger commodity prices, a commodity-driven economy such as South Africa offers strong prospects and hence investors bet on the local currency.
However, a lingering fear the Federal Reserve will raise interest rates in November, which could lead to a fall in commodities prices, is keeping a lid on the rand from strengthening further.
"The rand is currently quoted at R14.66 in the Far East this morning. A break above R14.70 could see the rand test the next R14.85 target, but this is likely to depend on further dollar recovery," said Andre Cilliers, Currency Strategist at TreasuryONE.
China Evergrande paid a dollar bond interest payment due Sept. 23 days before a deadline that would have plunged the embattled developer into formal default, bringing faith back to emerging markets, albeit temporarily.