[SPONSORED] Rand volatility is the gift that keeps on giving to speculators and traders. AbsaSouthAfrica Moneyweb markets
Rand volatility is the gift that keeps on giving to speculators and traders. Over the past year, from peak to trough, the ZAR-USD rate swung 37%.
Other countries in Africa, notably Nigeria, faced a severe shortage of US dollars as depreciation in the local currencies led to huge demand for US dollars. South African forex markets weathered the storms due to their deep liquidity. No sooner had the country emerged from the Covid crisis than the world was plunged into yet another economic crisis, this time triggered by the Russia-Ukraine war.
The way to avoid these risks is by formulating a forex hedging strategy, a process that starts by analysing and quantifying forex risks. “SA has its own internal factors like load shedding, infrastructure decline, political uncertainty, and the news on Friday [24 February] that it has been greylisted. A lot of these risks are unique to SA, and there will be a lot of focus on internal factors for the foreseeable future. That’s in addition to the external factors that are at play, such as the war in Ukraine, and widening geopolitical tensions involving China, Taiwan and the US, and of course North Korea.
At the one extreme, a company may not hedge any risks, and at the other, hedge everything. There is a balance between these two extremes.
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