In the wake of South Africa announcing a government of national unity (GNU) in mid-June, there was significant optimism from international investors. The members of the GNU, it was thought, would help create the kind of stability that fostered economic growth.
That optimism significantly affected the rand, which briefly strengthened to below R18.00 to the US dollar for the first time since 2023, writes Harry Scherzer, CEO of Future Forex.
Since then, enthusiasm for the rand has cooled slightly, with the local currency hovering between R18.00 and R18.60 in July. This has had nothing to do with the GNU, which appears to have refound stability following some jitters around the makeup of its cabinet. Instead, the retreat was primarily a result of the Monetary Policy Committee (MPC) putting an anticipated interest rate cut on hold, following the lead of other central banks around the world.
These currency movements show that while a growing economy and political stability will generally be good for the rand, other factors are at play, some of which are completely beyond South Africa’s control. These uncontrollable factors mean that people and businesses making significant international money transfers should focus less on the rand’s fluctuations and more on which provider they use.
Before expanding on why choosing the right international money transfer provider is so important , it’s worth taking a closer look at some factors that can influence the rand. In doing so, it’s important to remember that exchange rates are, first and foremost, a measure of relative value.
So, for example, if the US or UK release positive economic data, then their respective currencies will strengthen. If South Africa doesn’t release similarly positive economic data at the same time, then the rand will weaken relative to those two currencies.
Over the past couple of years, we’ve seen this in action. A fair proportion of the rand’s losses in recent years have been down to the US Federal Reserve’s programme of increasing interest rates as it looked to tame out-of-control inflation. These increased interest rates, coupled with continued economic growth, led investors to put money into vehicles like US treasury bonds, strengthening the dollar as a result.
The relationship might not always be this direct either. Poor economic data from China, for instance, can result in investors pulling back from emerging markets in general (reflecting both the size of China’s economy and its geopolitical influence), impacting the rand.
In other words, anyone trying to time their international money transfers with fluctuations in the rand could quickly find themselves frustrated. So, rather than trying to stay on top of something they cannot control, businesses and individuals should focus on what they can control.
Choosing the right international money transfer provider is at the top of the list of these controllable factors. While most businesses and individuals would naturally be inclined to use their banks for these purposes, that’s seldom a good idea.
While banks do excel in other areas, they do poorly when it comes to international money transfers, particularly for smaller businesses and individuals. Not only do they lack transparency around pricing, but they also fall short on other important measures such as automation and customer service.
As a result, businesses and individuals can end up paying far more than they should on transactions. They’ll also have to deal with a general lack of efficiency and incredible frustration, particularly if they ever have an issue with a transaction.
Any individuals or businesses with international money transfer needs should instead choose a provider that places top priority on transparency and customer service (including through automation). Its customer service should also be backed up by deep industry expertise, ensuring that any issues can easily be dealt with. Businesses should also look for a provider that offers forward exchange cover, meaning that they know exactly what exchange rate they’ll be using when they book an international transfer for a future date.
Combined, all of these things can give businesses and individuals alike a far greater sense of certainty whenever they make an international money transfer. And with a currency as volatile as the rand, that’s priceless.
Of course, political stability and economic growth are to the benefit of a currency. It should be clear, however, that they’re far from the only factors at play. And whether an individual or business is looking to take advantage of growth or mitigate volatility, they should first look to what’s controllable.
That means ignoring the noise around rand volatility and choosing an international money transfer provider that knows what businesses and individuals want and need, and that also does an exceptional job delivering them.