South Africa's rand retreats as bears await crucial events

JOHANNESBURG: South Africa's rand weakened on Tuesday, giving way to a recovering dollar and the return of bearish positioning ahead of consumer inflation and retail data as the central bank prepares to decide on lending rates.

At 1220 GMT the rand was 0.47 percent weaker at 13.2750 per dollar, succumbing initially to a global wave of risk aversion, and then a squaring of long positions and profit-taking, with traders eyeing upcoming events for the next move.

The emerging market selloff began on Monday after oil prices tumbled over 4 percent, mixing with concerns over China's second-quarter economic growth and lingering concerns about Turkey's policy path since Tayyip Erdogan's reelection.

"There is currently some negative sentiment towards Turkey and its president Erdogan; traders may use the rand as a proxy for the Turkish lira, which could lead to rand weakness," traders at Investec said.

Headline inflation is set to jump in June as the plunge to a 7-year low in March gives way to increases in value-added tax and petrol prices.

All 25 economists polled by Reuters last week expect South Africa's Reserve Bank to hold rates at 6.5 percent on Thursday..

Markets will also be looking at how hawkish a tone Governor Lesetja Kganygo strikes.

At the last meeting in May the bank said the growth outlook remained challenging but would likely outperform, backed by improving business and consumer confidence.

Consumer confidence in dipped slightly in the second quarter, but remained "extraordinarily high" in the face of a weak economy, revealing an uneasy path to economic growth.

The regulator has been hard-pressed to cut rates to support consumers, but is also weary of inflation topping its 6 percent upper target.

The comparatively high yield offered by holding South African currency and bonds, as well as relative political stability since Cyril Ramaphosa was elected president in February, has made local assets a favourite carry trade target among EM's.

Bonds were firmer, with the yield on the benchmark issue due in 2026 down 3 basis points to 8.68 percent.

On the bourse, the Johannesburg Stock Exchange's Top-40 index inched up 0.4 percent to 49,541 points, while the All-Share index was up 0.42 percent to 55,674 points.