How do US tariffs on Mexican goods impact emerging currencies like the ringgit?

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US Tariffs on Mexican Goods and their Impact on Emerging Currencies

The ringgit traded almost flat against the US dollar on May 31, 2019, as renewed concerns over the global economic outlook prompted some investors to shift their interest towards emerging currencies, including the ringgit. This cautious trading environment followed US President Donald Trump's threat to impose new tariffs on Mexican goods, which raised fears of tipping an already fragile global economy into recession.
Global Economic Uncertainty and Investor Sentiment

Heightened uncertainty surrounding the global economic outlook, exacerbated by escalating trade disputes such as the potential US tariffs on Mexican goods, typically leads investors to re-evaluate their risk exposure. In such scenarios, there is often a discernible shift in capital flows, with investors becoming more inclined to seek out perceived safe havens or to diversify into assets they deem less vulnerable to immediate trade shocks. Emerging market currencies, while sometimes subject to volatility, can attract interest during these periods as investors look for potential growth opportunities or diversification benefits away from developed markets heavily exposed to trade tensions.
Capital Flows into Emerging Market Currencies

When global economic sentiment deteriorates due to trade friction, such as the threatened tariffs on Mexican imports, a common investor response is to reduce exposure to assets perceived as higher risk. Conversely, this can sometimes lead to increased demand for currencies of emerging economies that are seen as having a more stable outlook or offering attractive yields. This dynamic can create a pull factor for capital, influencing the trading levels of currencies like the Malaysian ringgit as investors adjust their portfolios in response to evolving global economic risks.
Ringgit's Performance Amidst Global Trade Tensions

The Malaysian ringgit, like other emerging market currencies, can exhibit sensitivity to shifts in global investor sentiment driven by major trade policy developments. The threat of new US tariffs on Mexican goods, adding to existing China-US trade dispute concerns, contributed to a general unease in financial markets. This unease prompted a reassessment of investment strategies, leading some investors to favour emerging currencies. On May 31, 2019, the ringgit's performance, trading almost flat against the US dollar at 4.1890/1920 from the previous day's close, reflected this cautious trading behaviour driven by broader global economic concerns.

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How do US tariffs on Mexican goods impact emerging currencies like the ringgit?

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