The business playbook for a stronger rand

The South African rand has strengthened sharply in recent months. Before the US-Israeli war in Iran, the rand had appreciated from nearly R20 to the US dollar to just R16/$ – a move that took many market participants by surprise. For corporate treasurers, the most prudent response to rand strength – when it happens – depends on which side of the market you’re on.

For a very long time in South Africa, if you were an exporter, you didn’t have to do much to gain from the weaker currency. Exporters typically waited until they reached the right levels and executed their currency hedging then. As a result, they didn’t have to think too hard about which instruments to use to enjoy the benefits of the currency and their hedges. And because the rand was on a weakening trajectory, they benefited on the cash flow front, too.

Right now, with the rand holding well below the R17/$ mark, it’s the reverse for importers. Whether you’re a retailer, in the automotive industry, or in any sector reliant on imports, the persistently weak rand has been a headache. It has disrupted margins and costings. Now, however, these businesses can breathe easier. Many of Absa’s importer clients have hedged their positions to secure strong levels.

Our advice to importer clients: use periods of strength to reset your currency hedging approach. Adopt a more proactive strategy. Capture current rand strength, position for possible rand weakening, and hedge against volatility.

The rand’s rapid appreciation reflects a combination of domestic improvements and global factors. These include a more favourable inflation outlook, improved energy reliability, an encouraging growth trajectory and broad-based weakness in the US dollar.

A stronger rand has several effects on South African businesses. South Africa remains a commodity-driven economy, and the strength of the rand has been driven by higher commodity prices, particularly precious metals. Commodities exporters may be stable because, although they receive fewer rand per dollar, their exports are more valuable.

However, South Africa is also a consumer-driven economy. In the long term, a stronger currency is good news for consumers and industries that depend on imports, such as manufacturing and retail. This is already visible in figures such as slightly lower unemployment and a positive growth trajectory.

Overall, there will be some short-term pain as exporters adjust to the stronger currency. In the long term, though, a stronger rand will be good for the structural integrity of South Africa’s economy and for many businesses.

History shows that, despite the rand’s current strength, it remains vulnerable to unexpected spikes. The recent US action in Iran is a live example of this. Current market sentiment leans toward the rand trending relatively strong, but risks remain. The war in Iran, if prolonged, may result in more persistent dollar strength.

What makes our jobs interesting as financial markets professionals is that we help our clients navigate through turbulence. Every day is different in currency markets. We know that many factors drive the rand’s value: commodity prices, global inflation, and so on. For exporters, our advice is: don’t panic. Pick your levels. Work with your bank to achieve your updated target levels. For importers, it’s: take a fresh look at how you approach currency risk management.

Our key recommendation is to stay calm, communicate frequently with your bank and make decisions based on the latest information. Things change daily, and there’s much we don’t yet know, like the inflationary impact of President Trump’s tariffs, new wars, or future rate adjustments from the Fed. Monitor these developments with your bank, as they will affect currency and commodity prices.

There’s never a dull day in currency markets, especially not now.