The Rand, Black Swans and the danger of betting on one outcome

By Nico le Roux*

There is a phrase that should make every business owner nervous: “That will never happen.”

Financial markets have an unfortunate habit of eventually doing exactly what everyone thought was impossible. One of the best examples happened on 20 April 2020.

At the height of the Covid crisis, global demand for oil had collapsed while storage facilities in the United States were filling rapidly. Then something extraordinary happened: the price of the front-month West Texas Intermediate oil futures contract fell below zero. At one point, it traded at around minus $40 a barrel. Yes, the word minus is not an error! It sounds impossible. Oil is a valuable physical commodity. How could its price be negative? Yet, under an extraordinary combination of collapsing demand, limited storage capacity and expiring futures contracts, that is exactly what happened.

Businesses and investors whose risk models assumed that oil could never trade below zero suddenly discovered how dangerous the words “that cannot happen” can be. It was a classic black swan event: something considered highly unlikely until it actually happens.

For South African businesses managing currency exposure today, there is an important lesson in that story. 

“The rand can only weaken”

For many years there has been an almost accepted belief in South Africa that the rand will ultimately weaken against the US dollar. There are understandable reasons for this view. Over long periods, the rand has depreciated substantially. As a result, many businesses have become accustomed to thinking of currency risk almost entirely in one direction.

Then came 2025.

On 9 April 2025, amid global tariff fears and uncertainty surrounding South Africa's coalition government, the rand touched an all-time low of approximately R19.93 to the dollar. Fast-forward to 12 August 2026 and the SARB reference rate was approximately R16.18 to the dollar. 

That is an enormous move.

In little more than a year, the rand strengthened by approximately 19% from its weakest level. For an importer buying dollars, that has been welcome news. But for an exporter, or any business that effectively bet on the rand continuing to weaken, the financial impact can be substantial, even existential.

Consider an exporter expecting to receive $5 million. At R19.93 to the dollar, those dollars are worth roughly R99.7 million. At R16.18, the same $5 million is worth approximately R80.9 million.

That is nearly R19 million less in rand revenue, even though the business sold exactly the same amount of product for exactly the same dollar price. Nothing changed operationally. The currency changed.

Doing nothing is also a decision

This highlights one of the biggest misconceptions about treasury management. Businesses sometimes believe that not hedging means they have chosen not to take a view on the currency.

In reality the opposite is true. If an exporter chooses not to hedge because management expects the rand to weaken, that business has taken a currency view. If an importer leaves a future dollar payment uncovered because management believes the rand will strengthen, it has done the same thing.

Being unhedged is itself a position, and when a black swan event arrives an unhedged position can become extremely expensive very quickly.

But many SMEs face another problem

There is, however, another reality that is often overlooked. Many South African SMEs understand the benefits of hedging. They may even have a clear treasury policy and know exactly how much currency risk they would like to protect. But they simply cannot afford to implement the strategy.

Foreign exchange derivatives require credit facilities, collateral or margin. For a growing SME, that capacity is often already being used to finance stock, equipment, debtors or day-to-day working capital. The CFO therefore faces a difficult choice: do you use scarce funding capacity to hedge the currency, or do you use it to fund the business? This is where the role of a treasury partner needs to go beyond simply providing an exchange rate. Businesses need access not only to treasury advice and execution, but also to the funding capacity required to implement an effective hedging strategy.

By combining treasury expertise with broader funding, strong treasury partners can help qualifying businesses fund the margin or credit requirements associated with their hedging programmes.

That distinction matters. A hedging strategy that exists only on a spreadsheet does not protect a business. It has to be executable.

Treasury is not about predicting the rand

The objective of treasury management should therefore never be to prove that you can predict where USD/ZAR will trade next. Very, very few people can do that consistently.

The better question is: What happens to our business if we are wrong?

We start with the business rather than the currency forecast by asking what happens if the rand moves 10%, 15% or even 20% in the wrong direction? From there, an appropriate strategy can be designed using forwards, options, layered hedging or combinations of these instruments, while also considering the funding and working-capital implications.

Because foreign exchange should never be viewed in isolation.

Prepare for what you cannot predict

Nobody planning their business in early 2020 expected oil to trade below zero. Yet it happened.

And anyone who looked at USD/ZAR at almost R20 in April 2025 and assumed the rand could only weaken further has received another reminder that financial markets do not have to behave the way we expect them to. The rand could strengthen further from here. It could also weaken sharply. We simply don't know.

And that is precisely the point of good treasury management.

Hedging is not about being right about the rand. It is about making sure that being wrong does not damage the business.

Because the most expensive words in financial markets may still be: “We never thought that could happen.”

*Nico le Roux, Managing Director, Merchant West Treasury