What's behind the Philippine peso's depreciation

ASEAN currencies often spend extended periods trading roughly in line with each other against the US dollar. In times of "King Dollar" USD appreciation, Southeast Asian currencies tend to drop in unison; the reverse occurred after "Liberation Day" in April, which shook international confidence in the greenback.

Recently, the Philippine peso has become an interesting case. It's diverged from its usual alignment with the Malaysian ringgit, the Thai baht, and the Singapore dollar. This underperformance reflects growing concerns over the Philippines’ external position.

The peso’s strong historical correlation with net equity inflows has broken down, as we show in our second chart (which taps exclusive, international fund-flow data from our partners at EPFR). This signals that capital inflows -- which have turned positive recently -- are no longer providing the same currency support.

At the same time, the peso remains the most sensitive among ASEAN currencies to oil prices, given the Philippines' import needs -- which increase foreign-exchange outflows. (Thailand also depends on imported oil, unlike Malaysia -- but Thailand consistently runs net trade surpluses, unlike the Philippines.) Earlier this year, a falling oil price helped support the peso, but that was disrupted by the Iran-Israel conflict.

Temporary gains from front-loading exports before the US tariff deadline (and that earlier decline in oil prices) helped narrow the nation's trade deficit in early 2025. However, Donald Trump's 19% tariff, waning momentum in export shipments and a broader global trade slowdown may worsen the trade balance in the second half.

The central bank has already revised its balance of payments forecast -- projecting a wider deficit. This points to a growing need for foreign currency, likely financed through borrowing or reserve drawdowns — both signs of rising external stress.

These days, the peso is trading more like the other ASEAN outlier: the Indonesian rupiah, whose weakness has reflected that country's fiscal stresses.

Click here to read about "Liberation Day" in April, which shook international confidence in the greenback, fund-flow data from our partners at EPFR and the Indonesian rupiah, whose weakness has reflected that country's fiscal stresses.

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