Latin America Currencies Poised for Strengthening Amid Commodity Demand

Citi's forecast predicts stronger Latin American currencies over the next 12 to 18 months due to rising commodity demand and a weakening US dollar.

This trend benefits commodity-exporting economies but creates headwinds for export-oriented services sectors, such as business process outsourcing (BPO) and software development companies reliant on US clients.

A stronger local currency makes their services more expensive in dollar terms, squeezing profit margins. Citi's chief economist Ernesto Revilla noted that the weak dollar acts as a tailwind for regional economies.

The US dollar has fallen by over 10% in 18 months, supporting currencies like the Colombian peso and Mexican peso despite domestic uncertainty. Citi expects this trend to persist through 2027.