After looking at my trade idea on Compagnie Financiere Richemont SA (CFR) I thought that I should share my thought process on coming up with the trade and the relation to the Rand (ZAR) or the USD/ZAR currency pair to be specific for clients starting out.
Rand hedging means protecting one's investment or portfolio (denominated in Rand) against a weakening currency. So, in our case if the Rand (ZAR) starts to depreciate then we can hedge that risk through certain JSE -Listed companies who derive most of their income and earnings from overseas operations. Richemont is an example of a company that derives almost all their profits outside South Africa.
The Dollar/ Rand currency pair (USD/ZAR) has been trading sideways between R12.19 and R11.50 from the end of January 2018 as seen in the chart.
It is currently at a key level of resistance at R12.09 and it would need to depreciate further for the Rand Hedge Stocks to move higher.
Tip: When looking to trade Rand Hedge Stocks I always look at what the Rand (ZAR) is doing, if I see a great set-up like on my Richemont trade note and I am buying then I would look for the Rand (ZAR) to depreciate against the Dollar.