JOHANNESBURG: South Africa's rand steadied against the dollar on Friday with potential for further gains in the next few days, but the euro zone debt crisis still poses risk for the currency.
The rand hit 7.77 on Thursday, its strongest level in nearly three months, supported by US Federal Reserve's signal that interest rate will stay near zero for the next two years.
Government bonds also steadied near multi-month highs hit Thursday in tandem with the rand.
On the bourse, futures pointed to a lower open at 0700 GMT after the Top-40 recorded its highest close since May 2008 on Thursday.
The JSE's Top-40 March futures contract was down 0.6 percent before the start of trade.
The rand was trading at 7.82 against the dollar at 0640 GMT, not far from Thursday's New York close of 7.8240.
"We are back to being a high-yielding currency. The rand looks oversold on a daily basis but there doesn't seem to be a reversal yet and there's potential for 7.70," said Jim Bryson, chief dealer at Rand Merchant Bank.
"Going forward, it's too early to call, but for now, the direction seems to be on the (firming) side. With the euro not out of the woods yet, that might spoil the rand's party."
The rand's gains might hit inflation-linked bonds.
Government is due to offer 800 million rand ($102.7 million)of the bonds at its weekly auction, whose results will be out after 0900 GMT.
Demand for the bonds increased late last year as inflation trended up, with expectations the rate will stay outside the Reserve Bank's 3-6 percent target range until early in 2013.
Absa Capital said in a note with the firming of the rand, inflation concerns may have receded and demand for inflation-linked bonds might not be so strong.
On bonds, the yield on the 2015 bond inched up 0.5 basis points to 6.48 percent, and that on the 2026 note ticked up by the same margin to 8.235 percent.
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