South Africa's rand holds steady before CPI, Fed decision

JOHANNESBURG (Reuters) - South Africa's currency traded sideways against the dollar early on Wednesday with investors bracing for potentially poor inflation data and the U.S. Federal Reserve's decision on quantitative easing. At 0637 GMT, the rand was at 9.8045 to the dollar, not far off its close in the New York market on Tuesday. The local unit notched up strong gains on Monday on speculation that the Fed would keep monetary policy loose for longer than expected, but has since lost some of those gains on uncertainty around the decision. Dollar/rand is trading within the range set on Monday and is likely to stay there until later this evening when the Fed holds its news conference. The U.S. central bank is expected to say it will begin reducing the pace at which it prints money to buy bonds, starting to turn off the tap on a major source of cheap money for emerging markets such as South Africa. Another risk for the rand will come from domestic inflation data at 0800 GMT. Economists expect prices to have risen further out of the central bank's 3-6 percent target, with August CPI forecast at 6.45 percent year-on-year, from 6.3 percent the previous month. "Recent rand strength will have lessened the pressure on the SARB to react immediately to these stronger inflation pressures," Tradition Analytics said in a note, adding that without a more meaningful rand recovery, inflation could remain out of the target range for an extended period. "The question is simply how willing the SARB will be to tolerate this if it persists for longer than anticipated." The Reserve Bank will announce its monetary policy decision on Thursday. It is expected to highlight its concerns about rising prices. Statistics South Africa will also release retail sales data at 1100 GMT in this session. Economists forecast a pick-up to 4.5 percent in July from 1.9 percent in June. Yields on government bonds retreated slightly, with that on the benchmark 2026 bond giving up 1 basis point to 8.145 percent.