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The rand hovered around its lowest levels so far in 2023 amid record levels of intensive load shedding and as the dollar recovered from recent weakness.
The local currency was trading at R17.27/$ on Friday morning, after the starting the year at around R17.
The rand is under pressure from heightened concerns over South Africa’s power crisis, said Bianca Botes, director of Citadel Global.
This week, new data showed that South African mining production contracted by 9% year-on-year in November - the tenth consecutive month of deteriorating mining activity, as prolonged load shedding continued to weigh on output, Botes added.
The dollar also edged up 0.2% against a basket of other major currencies to 102.17, holding narrowly above Wednesday's seven-month lows. The index has fallen 1.3% this year after sinking 7.7% in the last three months of 2022, when investors began attaching a higher chance of the Federal Reserve slowing down the pace of interest-rate rises.
The Japanese yen bore the brunt of the dollar's strength. The dollar rose by as much as to 129.26. The yen, which investors have long been favoured as a safe-haven and a funding currency, has had a volatile few weeks.
Speculators are betting that the Bank of Japan, the last major central bank to still employ loose monetary policy, is edging towards a shift to a tighter stance. That has driven a rally in the yen that has pushed the dollar/yen currency pair down by 14% in the past three months.
Data on Friday showed Japan's core consumer prices in December rose 4.0% from a year earlier, double the central bank's 2% target.
"Japan now has an inflation problem that it hasn't had in nearly 40 years," CMC Markets chief strategist Michael Hewson said.
"For me, the die is cast - dollar/yen will go lower and it's a question of how quickly," he said.
The BOJ on Wednesday maintained its ultra-loose monetary policy, even though there had been expectations among investors that the central bank could signal a change.
"We now expect the BOJ to exit from yield curve control and negative interest rate policy by the end of June, conditional on a solid pick-up in Japan's wage growth," said Carol Kong, currency strategist at Commonwealth Bank of Australia.
A flurry of US data on Thursday indicated the world's biggest economy was slowing down after multiple rate increases by the Fed. Money markets show traders are preparing for an end to rate rises by the middle of this year.
However, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to another month of solid job growth and continued labour market tightness.
"Looking at the way the market are going so far this year, they got off to storming start and at some point there was always going to be a bit of a pullback and we’re certainly seeing that now," CMC's Hewson said.
With much top-tier data out of the way now, investors are waiting for the first Fed meeting of the year in early February.
The central bank raised interest rates by 50 basis points (bps) in December after four, straight 75 bps increases, and the market is eagerly anticipating another stepdown.
ING economists said the intense scrutiny of US growth means that the dollar remains vulnerable to data releases as markets keep scaling back Fed rate expectations.
"The fact that the ongoing dovish repricing is not only a consequence of slowing inflation but also of a worsening economic outlook in the United States has exacerbated the negative implications for the dollar," according to ING economists.
Meanwhile, the euro was flat at $1.0834, while sterling fell 0.4% to $1.2342, after UK data showed a surprise drop in retail sales in December, as British shoppers bought less, but spent more.
Additional reporting by News24
