Photo: Galeanu Michał/Getty Images
The rand briefly hit 19 to the dollar for the first time since April as markets worried about the outcome of Thursday's ANC national executive committee (NEC) meeting.
The NEC will decide whether to form a national unity government including the EFF or a minority government consisting of the DA, IFP and other smaller parties.
Read | United Nations | Government of National Unity: DA or EFF? ANC faces historic choice
At a press conference on Wednesday, ANC spokesperson Malengi Bhengu Motsili gave the strongest indication yet that the ANC was leaning towards forming a coalition government that included the EFF.
Following initial reports that the ANC was considering cooperation with the DA, the rand and other South African-linked stocks, particularly local banks and retailers, rose.
However, ANC organisations and the party's alliance partners opposed the deal with the DA, resulting in heavy losses to South African assets.
As of 12:30 on Thursday, the rand was trading at just 19 rand to the dollar before recovering slightly to 18.99 rand. Less than a year ago, in July last year, the rand hit 17.56 rand to the dollar.
“A national unity government that includes everyone, including the EFF, will be seen as a disappointment,” Mamokete Lijane, global market strategist for corporate and investment banking at Standard Bank, told Bloomberg. “The ongoing uncertainty is making people anxious.”
A weaker dollar helped limit some of the rand's losses on Thursday, as the currency also weakened on easing US labour market conditions, strengthening the case for the Fed to cut interest rates this year.
Markets are pricing in roughly 50 basis points of interest rate cuts from the Fed this year, with the first cut expected in September.
Data on Wednesday showed the U.S. services sector returned to growth mode in May after a brief contraction the previous month, but survey details showed employment remained in contraction territory.
“New orders suggest continuing demand, but some industry commentary and continued employment contractions suggest some caution among service providers,” Wells Fargo economists said.