May 23, 2012 / 2:49 PM / in 5 years

S.Africa's rand hits 2012 low, drags on bonds

JOHANNESBURG (Reuters) - South Africa’s rand hit a fresh 2012 low against the dollar on Wednesday, erasing two days of gains as risk aversion fuelled by mounting fears Greece will leave the euro zone hit emerging markets.

The falls tracked declines in the euro as officials asked members of the single currency zone to prepare contingency plans in case of a Greek exit, sources told Reuters.

Yields on South African government bonds rose to one-week highs, with investors concerned that the weaker rand would increase inflationary pressures.

Earlier, data showed April headline inflation quickened to 6.1 percent year-on-year from 6.0 percent in March.

The rand traded at 8.44/dollar at 1600 GMT, coming off the day’s low of 8.4626, a level last hit in November.

“We’ve seen a lot of flight to safety. A lot more people are moving their money out of emerging market currencies into the U.S. dollar so we’re seeing a very strong dollar this afternoon,” said Paul Chakaduka, a dealer Global Trader.

The rand is sensitive to developments in Europe as the region is a major trading partner. The currency is also very liquid and investors use it to hedge broader emerging market positions, making it highly susceptible to changes in global risk sentiment.

The yield on the heavily traded three-year government bond rose 9 basis points to 6.415 percent while that for the 14-year paper climbed 9.5 basis points to 8.36 percent.

“Maybe the guys were a little bit concerned that there is an inflationary aspect that the rand might bring to the party,” said Ashley Dickinson, a bond unchanged at 5.5 percent.trader at Renaissance Capital.

“I would guess we are (in) defence ahead of the rates decision.”

The central bank will announce its monetary policy stance after 1300 GMT on Thursday and all 31 economists surveyed by Reuters expect rates to stay

But the central may revise its inflation forecasts. It has previously said it expects CPI to peak this quarter at 6.5 percent and end the year inside its 3-6 percent target band.

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