Johannesburg - South Africa's rand on Wednesday tested fresh highs for the year against the dollar, with market watchers anticipating some volatility later in the day, after release of minutes for the US Federal Reserve's latest policy meeting.

The rand climbed to a session high of 10.4170 against the dollar, just shy of the three-month record of 10.4125 achieved on Tuesday, before losing some momentum to trade at 10.4545 by 17:47 SA time.

This was up 0.12 percent from its previous close.

In fixed income, the yield on the short-term government bond maturing in 2015 rose by 1.5 basis points to 6.715 percent, while the benchmark issue due in 2026 added 4 basis points to 8.355 percent.

“It's been very thin trading volumes after a strong rally over the last couple of days, it's a little bit of profit-taking at the moment in the bonds,” said WWC Securities head of bond trading Marten Banninga.

Trading was cautious ahead of the Fed minutes, he added.

The rand plunged to five-year lows against the dollar earlier this year as investors sold off emerging market assets amid uncertainty around the Fed's scaling back of its ultra-loose monetary policy.

Signs of tightening in the world's largest economy will weigh on emerging markets that have previously benefited from portfolio flows linked to the Fed's multi-billion dollar monthly asset purchases.

“There is a possibility ... that US rates might rise quicker than expected,” Banninga said.

On Tuesday, South African Reserve Bank Governor Gill Marcus said she expected rand to remain volatile, but reiterated that the central bank would not intervene directly in currency markets. - Reuters