The rand extended gains into a third day on Friday as traders positioned for an interest rate hike next week and the dollar slipped.
By 4pm GMT the rand was 0.8 percent stronger at 15.1100 to the dollar and up 1.7 percent this week. The dollar was down around 0.2 percent against a basket of currencies on Friday.
Analysts at Rand Merchant Bank said in a research note that the rand “could be vulnerable to a correction given its remarkable performance for the week and year relative to other emerging markets”.
Expectations for a January 27 rate hike grew on Wednesday, when December consumer inflation came in higher than expectations at 5.9 percent year on year, close to the top of the South African Reserve Bank's 3-6 percent target range.
Economists polled by Reuters predict a 25 basis point increase in the repo rate to 4.00 percent next week. That would be the second successive hike after the central bank raised rates in November.
Also supporting the rand, the World Bank approved a $750 million, low-interest loan to help South Africa recover from the Covid-19 fallout.
“This loan will support the government of South Africa's efforts to accelerate its Covid-19 response aimed at protecting the poor and vulnerable,” the World Bank and South Africa's National Treasury said in a joint statement early on Friday.
Shares on the local bourse tumbled on Friday with the two main indexes on the Johannesburg Stock Exchange losing all their gains of the week as poor earnings releases from the US overshadowed a Chinese stimulus boost that pumped up the market on Wednesday.
“There is a lot of short-term noise around inflation, stimulus and earnings and this is making the market frothy,” said David Shapiro, equity strategist at Sasfin Securities.
In the long run, however, governments cannot afford to derail the economy after two years of stimulus and that bodes well for the market, he said, but cautioned that 2022 will not be as stellar as 2021.
The FTSE/JSE benchmark all-share index fell by 1.83 percent to end the week at 74 835 points and the FTSE/JSE blue-chip index of top 40 companies slipped by 2.01 percent to 68 186 points.
The government's 2030 bond was slightly firmer in early deals, with the yield falling 5.5 basis points to 9.245 percent.