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South Africa's rand firmer in cautious trade

A street money changer counts South African Rands in Harare, Zimbabwe, May 5, 2016. REUTERS/Philimon Bulawayo

JOHANNESBURG (Reuters) - South Africa’s rand traded firmer early on Monday, adding to gains at the end of previous week as yield-seeking investors made tentative bets on the volatile currency amid risk aversion elsewhere in emerging markets.

At 0630 GMT, the rand was 0.36% firmer at 15.1025 per dollar against an open of 15.1900.

The rand continued to defy the broader slide in emerging market currencies, although it remained in a range near the 15.00 bottom targeted by bulls, as the relatively high yield on offer kept buyers in play.

Global investors have mostly opted for safe-haven bets, wary of the ongoing battle on Wall Street between hedge funds and retail investors. That has pushed up dollar buying, hurting risk assets.

But with interest rates set to remain steady locally, even as monetary and fiscal stimulus in the United States and Europe remains expansionary, the rand is an attractive carry trade offering healthy returns against near-zero rates in the developed economies.

Traders warned these flows may be short-lived with South Africa’s fiscal risks coming into sharper focus with a slew of economic data book-ended by the budget near the end of the month.

“The ZAR primarily traded at the mercy of broader market sentiment through the month, although this may change in February given the notable risk events scheduled on the local calendar,” said economists at ETM Analytics.

Bonds were also marginally firmer, with the yield on the benchmark 2030 government issue down 0.5 basis points at 8.730%.

Reporting by Mfuneko Toyana; Editing by Krishna Chandra Eluri

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