In global trade and investing, one truth never changes: timing matters. Nowhere is this more evident than in foreign exchange. Even small shifts in currency values can change the cost of sending money abroad or affect the returns on an offshore investment. Timing is everything in these situations.
This year, renewed trade disputes and political shocks have made exchange rates even more unpredictable. Knowing when to act has become essential. Businesses and investors must also plan ahead to manage currency risk effectively.
Currencies react to a complex web of factors
The factors include interest rates, inflation, commodity prices, investor confidence and geopolitical events. For an importer or exporter, even a few cents’ movement in the Rand-Dollar rate can decide whether a deal ends in profit or loss.
For investors, the stakes remain equally high. The same offshore investment can produce two very different returns in Rands, depending entirely on the conversion date. Timing is everything for investors who want to preserve value.
The challenge is that these currency movements often come from events far from home and beyond your control. For instance, the US recently imposed 30% tariffs on specific South African exports. These tariffs, which took effect this month, have already dealt a blow to industries such as mining and agriculture.
Tariffs like these ripple through the currency market. Anticipated drops in export demand can push the Rand lower. Uncertainty around trade policy often fuels volatility in emerging market currencies. For South African exporters, this creates a double risk: higher costs from tariffs and potential currency losses if the Rand weakens after a deal is signed but before payment is received.
Imagine a South African company shipping goods to the US at R18.00 to the dollar. If the Rand strengthens to R17.20 by the time payment arrives, the business earns less in rands for the same dollar amount. A weaker Rand could boost returns, but only if the company absorbs higher costs on imported inputs or raw materials.
This is why aligning contract terms, payment schedules and currency conversions with favourable exchange rates matters as much as the deal itself. Timing is everything when it comes to securing profitability.
Tracking timing carefully
South Africans investing offshore also need to track timing closely. A portfolio that gains 5% in Dollars might look good. However, if the rand strengthens over that period, much of that gain disappears when converting back to local currency. Without a plan for managing this risk, investors lose value even when the underlying investment performs well.
One practical tool for managing uncertainty is a Forward Exchange Contract (FEC). An FEC allows businesses or investors to lock in an exchange rate today for a future transaction. The rate remains fixed regardless of where the market moves in the meantime. This certainty protects future costs or returns and shields against sudden swings that could erode profits.
For example, an exporter expecting payment in Dollars in three months can use an FEC to guarantee the Rand value received. This removes the risk of the Rand strengthening in the interim. Similarly, an investor planning to repatriate offshore funds can secure a rate upfront. This protects gains from being wiped out by currency volatility. While FECs don’t always secure the absolute best rate, they remove guesswork and deliver stability in cross-border dealings.
In conclusion
Many people delay converting funds in the hope of catching the best possible exchange rate. In reality, the “perfect” rate only becomes clear in hindsight. Setting realistic targets and using market tools to act is far more effective than guessing. This approach saves more than money on one deal. It builds discipline into every cross-border payment and investment.
Trade policies can change overnight, as Trump’s tariffs demonstrate. Combined with shifting commodity prices and domestic economic pressures, this volatility is likely to remain the norm.
The key takeaway is clear. While you cannot control the market, you can control your response. By planning ahead, acting decisively and working with the right partner, you can turn currency fluctuations into an advantage instead of a risk.
Harry Scherzer | CEO | Future Forex | mail me |