Johannesburg - South Africa's rand rallied to a two-month high against the dollar on Wednesday, caught up in an emerging markets rally and extending gains after local inflation data.

The rand was looking to notch up a fifth day of daily gains against the dollar as global risk aversion - linked to geopolitical concerns around Russia and Ukraine - abates.

Emerging markets were also buoyed by benign inflation numbers out of the United States on Tuesday, igniting a relief rally in risky assets as the data signalled the that the Federal Reserve would stick to its monetary policy.

By 17:33 SA time, the rand traded at 10.4975 to the dollar, up 0.75 percent on its close in New York on Tuesday.

It last traded at these levels on May 30.

Domestic inflation data earlier signalled the South African Reserve Bank (SARB) would continue on its monetary tightening path, with CPI printing steady in June but with the core measure of consumer prices ticking up.

“Today's data does nothing to change the view that the SARB is in the midst of gradual tightening cycle,” said Shilan Shah, an analyst at Capital Economics.

“Following last week's rate increase of 25 basis points to 5.75 percent, further rate hikes are more likely than not over the coming months,” Shah said.

The rand hit a string of 5-year lows at the start of the year, and the central bank raised interest rates by a total of 75 basis points.

Yields on government bonds fell five basis points to 8.115 percent on the benchmark 2026 issue and dropped 6.5 basis points to 6.64 percent on the 2015 note. - Reuters