South African banknotes, featuring the smiling face of iconic statesman Nelson Mandela.

The rand tumbled to an almost two-week low on Thursday after the DA threatened to walk away from the Government of National Unity (GNU) over a disagreement with the ANC over the proposed composition of Cabinet.

SA’s currency, which was already under pressure in morning trade due to a stronger dollar, weakened to R18.4139/$ before recouping some losses to trade at R18.3915 at 11:10. As recent as last Friday the rand had traded as strong as R17.90/$, near the strongest level in almost a year on optimism the GNU would usher in much needed economic reforms. 

“The rand will remain in cautious terrain while the cabinet negotiations play out,” Bianca Botes, a director at Citadel Global said in a client note. “With no decision in the bag yet, we can expect the rand to take its cues from the global market.”

Investors have been awaiting news on what SA’s cabinet might look like ever since the ANC lost its outright majority for the first time since democracy in the country’s watershed 29 May general election. Initial market euphoria at signs the ANC and DA were willing to lead the formation of SA’s first GNU since the late nineties soon gave way to uncertainty as political haggling over the proposed composition of Cabinet threatened to derail the process.

Negotiations between the ANC and DA took a turn for the worse after President Cyril Ramaphosa altered the terms of an earlier offer to the John Steenhuisen-led party on Wednesday night. The revised ANC offer proposed only six cabinet seats for the DA but crucially replaced an offer for the minister of trade, industry and competition with the ministry of tourism.

COALITION NATION |DA to tell Ramaphosa the deal is off unless he sticks to original offer

News24 understands that this has angered the DA’s leadership which has now threatened to walk away from the GNU unless Ramaphosa sticks to his original offer.

A research note by Bank of America (BofA) Securities earlier this week said the rand remained at the mercy of politics due to rising political risks associated with the GNU uncertainty. As a result, BofA said it was “bearish” on the rand in the near term and expected it to slip to R18.40/$ between July and September.

“Locally all eyes are on the DA and whether it will accept the offer of six cabinet positions,” said Botes, adding that further trading volatility was likely in coming days as markets awaited a raft of key US data releases.

The key US data point for currency markets this week is the pending release of the US Personal Consumption Expenditures (PCE) price index, which is due on Friday and is likely to give an indication of whether inflation is slowing in the world’s biggest economy. The PCE data is a key inflation gauge for the US Federal Reserve, which needs inflation to cool in order to begin easing monetary policy.

US GDP and durable goods orders data is also due on Thursday while President Joe Biden and Republican rival Donald Trump were due to face off in a head-to-head debate ahead of the November presidential election.  

“The dollar has approached a two-month high as markets shift their attention to today’s US GDP and durable goods orders and tomorrow’s PCE data releases which will provide fresh direction to markets,” said Botes.

The JSE All-Share index was also 0.6% lower at 78.756.42 index points.