South Africa's Rand Trades Near Six-Month High Against Dollar

By Garth Theunissen

July 31 (Bloomberg) -- South Africa's rand was near a six- month high against the dollar before a report that may show producer inflation in the continent's biggest economy accelerated last month.

Factory gate inflation quickened to an annual 17 percent, from 16.4 percent in May, according to the median estimate of 16 economists surveyed by Bloomberg News. Consumer-price growth was 11.6 percent in June, from 10.9 percent the previous month, a report showed yesterday. Pretoria-based Statistics South Africa will release the producer-inflation report at 11:30 a.m. in Johannesburg.

The rand rose as much as 0.4 percent to 7.3595 per dollar, and fell to 7.4023 by 9:23 a.m. in Johannesburg, from 7.3918 yesterday, when it reached 7.3516, the strongest since Feb. 4. Against the euro, the rand lost 0.5 percent to 11.5684.

South Africa's currency has gained for six weeks, climbing 10.2 percent since June 12, when the central bank raised interest rates 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.

The rand remains the second-worst performer of the 16 most- traded currencies this year, falling more than 7 percent versus the dollar and about 13 percent against the euro.

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 that of Japan and 925 basis points higher than Switzerland's.

Government bonds snapped seven days of gains, with the yield on South Africa's benchmark 13.5 percent security due September 2015 adding 4 basis points to 9.45 percent. The yield on the 13 percent note maturing August 2010 climbed 7 basis points to 10.65 percent. Yields move inversely to bond prices.

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