Australia is the highest yielding AAA sovereign in the world. With a debt/GDP ratio less than 25%, its bonds are highly sought-after by international investors. And, as central bank officials reiterated only last week, the resource boom will require over A$100bn of inward investment over the next two years. Setting appropriate interest rates against this background is no easy feat, however. Western Australia might well require significantly higher rates, but manufacturing and retail industries are suffering as a result of currency strength. Tourism, too, is being hit hard as any visitor from the UK, receiving less than A$1.47 for his or her pound, will painfully testify! For all the good news, the Australian dollar looks stretched on most valuation criteria. Commodity prices, interest rate differentials and risk appetite are certainly supportive – but the air is getting a little thin as it again approaches all-time highs.