South African Rand Falls Against Dollar Before Inflation Data

By Garth Theunissen

July 30 (Bloomberg) -- South Africa's rand weakened against the dollar before a report that may show annual inflation exceeded the central bank's target for a 15th consecutive month.

Inflation in the continent's biggest economy accelerated to 11.3 percent in June from 10.9 percent in May, according to the median estimate of 18 analysts surveyed by Bloomberg. Pretoria- based Statistics South Africa will release the report at 11:30 a.m. local time.

The rand fell as much as 0.6 percent to 7.4045 per dollar and traded at 7.3675 by 8:28 a.m. in Johannesburg, from 7.3605 yesterday, when it rose to a 5 1/2-month high of 7.3908. The currency was little changed against the euro, at 11.4738.

South Africa's currency has risen for six straight weeks versus the dollar, climbing 10.1 percent since June 12, when the central bank raised its benchmark interest rate by a half-point to a five-year high of 12 percent. It has offered the best carry-trade return against the dollar, euro and yen over that period, according to data compiled by Bloomberg.

In carry trades, investors borrow money at a low interest rate to buy assets that offer better returns. They earn the spread between the cost of borrowing and the profit from higher- yielding investments, taking the risk currency moves will erase their returns. South Africa's main interest rate is 1,150 basis points above Japan's and 925 basis points higher than Switzerland's.

The rand is the second-worst performer of the 16 most- traded currencies monitored by Bloomberg this year, falling 6.9 percent versus the dollar and 13 percent against the euro.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.netCarli Lourens in Johannesburg at clourens@bloomberg.net