FX hedging in volatile markets

Currency markets remain unpredictable, and in 2025 they’ve become more complex than ever. The sustained weakness of the US dollar, combined with the rand’s uncharacteristic strength, has left many treasury teams reassessing their risk management frameworks.

Take the rand, for example. For much of this year, it has held firm below R18 to the dollar – a level few would have predicted. Many South African exporters, who would typically benefit from a weaker rand, had positioned for R19 to R20. With that scenario failing to materialise, some were caught without the flexibility to adapt.

This is a clear signal: in today’s foreign exchange (forex, or FX) environment, traditional assumptions are no longer sufficient.

Scenario planning has become a non-negotiable part of treasury strategy. A reactive approach in this market is risky: large, unexpected moves can significantly impact margins and cash flow. But the risks now extend far beyond market fundamentals. Geopolitical tensions, global trade wars, and the resurgence of tariffs are introducing new layers of uncertainty that can shift the currency landscape in a matter of days, or even hours.

Treasurers must be equipped to assess a wide range of potential outcomes and prepare executable responses in advance. A tariff imposed overnight, or a sudden breakdown in trade relations, can quickly undermine well-structured strategies if contingency planning isn’t in place.

At Absa, we’re working closely with our clients to help them think and act more strategically. Many are now engaging with us not just for pricing, but for scenario modelling, industry-specific strategies, and real-time idea generation. A key enabler in this process is Absa Hedgebook, our free, value-added platform designed for FX clients. It allows treasury teams to model different market scenarios, assess their potential exposures, and visualise the impact of various hedging strategies. This helps them plan with greater clarity and confidence, and – crucially – respond with agility when conditions change.

Once a strategic framework is in place (even if it consists of short-term, tactical plans), consistency is critical. It’s easy to get caught up in daily headlines or short-term moves, but overreacting can be just as risky as doing nothing. That said, doing nothing is also a decision, and one that carries its own consequences.

We saw this earlier in the year, when the dollar briefly traded above R18. We reached out to clients to discuss hedging opportunities, but some were holding out for R19. With the rand now closer to the lower R17s, that opportunity has passed… and the cost of inaction is clear. Having a plan, and the discipline to execute it, remains essential.

FX markets have also shifted in structure. Where we once saw 50-cent or R1 moves in the rand, we’re now dealing with much narrower trading ranges of 20 to 30 cents at a time. This makes timing and execution more complex, and places greater importance on understanding what each incremental move means to your business.

It also means risk management needs to be more nuanced. Treasurers should be regularly asking: If tariffs or regulatory changes impact my industry, am I protected? Can I absorb a sudden cost shock, or pass it on to customers? What is the financial impact of a 1% currency move on my margins?

For many of our clients, this environment has highlighted the need to stop thinking about hedging in purely linear terms. A single strategy won’t cover every eventuality. That’s where flexibility becomes vital.

In this context, FX options are becoming an increasingly valuable part of the corporate hedging toolkit. They provide a level of flexibility that’s critical when the future is uncertain, allowing treasurers to participate in favourable moves while still protecting against downside risks. In a scenario-based strategy, having instruments that adapt to different outcomes can provide a material edge, especially when macro shocks emerge from unexpected geopolitical flashpoints.

Generic market commentary and broad-based trade ideas are no longer enough. FX strategy must be tailored – not just to the business, but to its industry, risk profile, and operating realities. At Absa, we are deepening our partnerships with clients to offer this level of insight. By understanding the drivers behind each client’s exposures, we’re able to co-create more effective strategies and ensure they are positioned to navigate whatever comes next – whether it’s a market-driven move, or a policy shift on the other side of the world.