Can the New Zealand dollar fall further?

As it was with the rest of the currency market, the evolving financial crisis from this past week elicited incredible volatility from the world’s most liquid currency pair.

The Federal Reserve’s most recent Beige Book report summarized the current economic and financial situation best, as it noted rising price pressures, slowing growth, and tightening credit.  However, many individual FOMC members have focused more on the inflation issue.

A speech by Philadelphia Fed President Charles Plosser drove the US dollar higher on Tuesday morning, as he signaled that he would be voting to increase interest rates at the next Federal Open Market Committee meeting.

Federal Reserve Chairman Ben Bernanke's semiannual testimony on monetary policy to the Senate revealed increasingly bearish views on the US economy, and mounting concerns about rising inflation pressures.

Federal Reserve Chairman Ben Bernanke has the market guessing about whether interest rates will be increased this year.  His comments this morning about increasing the duration of emergency lending to investment banks reduces the chance that borrowing costs will rise.

With a rate decision by the Federal Reserve on the way on Wednesday, FOMC voting members have been mum on monetary policy as to avoid exacerbating any market bias.

There’s no doubt the Federal Reserve holds a much more hawkish bias nowadays, but is their stance extreme enough to warrant a preemptive rate hike next week?

The Federal Reserve and Treasury Secretary Paulson are doing everything possible to try to lead the US dollar to strengthen. Indeed, FOMC members such as Chairman Bernanke and Vice Chairman Kohn have harped upon inflation pressures, suggesting that the central bank my raise interest rates.

There has been a lot of speculation about the possibility of currency intervention in the US dollar. In the past year alone, the US dollar has fallen 15 percent in value against the euro, 18 percent against the Swiss franc and 13 percent against the Japanese yen.