The South African rand strengthened against the US dollar in early trading on Monday as investors looked ahead to July inflation data for clues about the health of Africa’s largest economy and the direction of interest rates.
At 0645 GMT, the rand traded at 16.1425 to the dollar, up about 0.4 per cent from its previous close.
Statistics South Africa is scheduled to release July inflation data on Wednesday, with analysts polled by Reuters expecting headline inflation to ease to 4.5 per cent.
The expected moderation would come after headline inflation accelerated to a two-year high of 5.0 per cent in June from 4.5 per cent in May.
The June increase was driven mainly by higher transport costs.
Economists at Nedbank expect inflation to slow further to 4.3 per cent in July, citing lower transport costs following a decline in fuel prices.
The inflation reading will be closely watched by investors because it could influence expectations about the South African Reserve Bank’s monetary policy and the future path of interest rates.
The rand’s gains also came as the US dollar weakened against a basket of major currencies.
Gold prices edged higher, supported by recent weaker-than-expected US economic data that has reduced market expectations of an interest rate increase by the Federal Reserve next month.
A weaker dollar can provide support for emerging-market currencies such as the rand by improving the relative attractiveness of riskier assets.
South African government bonds were largely stable in early trading.
The benchmark 2035 government bond yield fell by half a basis point to 8.425 per cent.
Markets are now focused on Wednesday’s inflation release, with a softer-than-expected reading potentially strengthening expectations for a more accommodative monetary policy outlook and providing further support for South African assets.
