Given the risks and uncertainties in global markets, and a more balanced outlook for the AUD/USD than in previous years, a more dynamic view on currency is likely to reap rewards this year. The AUD is unlikely to offer the type of risk/return characteristics it exhibited in the past 10 years, but importantly it does offer the highest yields available in the developed world to foreign investors. In their dynamic allocations to the AUD, investors should monitor short-term interest rate differentials, movement in commodity prices and general terms of trade, and global and regional growth trends together with market-related factors such as the size of positions held by the market in the AUD. The long-term picture for the Australian dollar is much more mixed. The fantastic gains of a once-in-a-generation terms of trade shock have been largely redistributed to the population through lower tax rates, while Australia has reported lower productivity gains than many other developed countries. A ‘buffer’ fund to invest some of these windfall gains in future generations, similar to the Norway sovereign wealth fund, seems a very sensible option and one that would likely smooth out the extreme gains and losses of the AUD over the recent commodities super-cycle.