South Africa’s rand firms as dollar bulls take back seat

JOHANNESBURG (Reuters) – South Africa’s rand strengthened against the U.S. dollar on Friday, shaking off a credit downgrade to state electricity company Eskom as emerging markets currencies took advantage of a weaker greenback.

At 1529 GMT the rand firmed 1.9 percent to 12.0650 per dollar, having earlier hit a session high of 12.0520.

The euro was headed for its best weekly performance against the dollar in more than two years, following a surprisingly dovish statement on rate hikes by the U.S. Federal Reserve.

But some analysts expect rand strength will be short-lived as the economy continues to battle domestic pressures underscored by growth forecasts of a mere 2 percent for 2015.

“Although the rand has been enjoying some respite again today, the dollar is still the safest bet,” said Natalie Rivet, emerging markets analyst at Informa Global Markets in London.

Standard and Poor’s on Thursday cut Eskom’s long-term rating to ‘BB+’ from ‘BBB-‘, giving the firm a “negative outlook” and saying last week’s suspension of the utility’s CEO and three senior executives had led to a loss of confidence.

Cash-strapped Eskom is struggling to meet electricity demand and has this year had to implement the worst rolling power outages since 2008, hobbling industrial output in an economy already constrained by shaky economic fundamentals.

“Eskom’s troubles are just one of the reasons to remain bearish on the outlook for the rand, alongside the soft GDP outlook and still large current account deficit,” Rivet said.

Government bonds were mostly flat, the benchmark paper due in 2026 edging up 0.5 basis points to 7.785 percent.