The paper examines the desirability of exchange rate management in a commodity-exporting country, in which the terms of trade are driven by the world commodity price cycle. When the authorities are assumed to pursue an inflation objective, the usefulness of managing the rate depends on the relative importance of monetary versus terms of trade shocks. Empirical evidence suggests that floating rate regimes will normally be preferred for countries like Australia and New Zealand, although circumstances can be envisaged in which either leaning-against-the-wind or leaning-with-the-wind policies are required. A review of experience since the Korean War boom suggests that attempts to fix the exchange rate in the face of the commodity cycle are likely to be associated with inflation problems, while labour market asymmetries can lead to resource misallocation and to pressures for the protection of the non-commodity traded goods sector ...