Politicians and exporters might be at loggerheads over the high NZ dollar, but by one indicator the Kiwi is right where it should be.
The Economist has released its annual Big Mac Index - a fun but supposedly revealing measure of whether currencies are under or overvalued.
It works by comparing the cost of McDonald's signature burger in the US to its price in other countries.
If a Big Mac costs more in your country than the US, your currency is overvalued. A cheaper burger indicates its undervalued.
"It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries," the publication explains.
The Economist reports a Big Mac costs $US4.37 in the US and $US4.32 in NZ - meaning the Kiwi is just 1% undervalued, and one of only a handful of surveyed currencies that is fairly valued.
The publication argues PPP is a good meaure of the "correct" value of a currency because it allows for different labour costs.
But the Big Mac index also features a figure adjusted for expected burger price weighted for GDP per person. By this measure, the Kiwi is 14.6% overvalued against the US dollar.
The Big Mac Index also measures a basket of currencies against the Euro, against which the Kiwi is 11.3% undervalued.
Against the British pound, the Kiwi is overvalued by 1.8%.
And against the Japanese yen, the Kiwi is overvalued by 23.1%.
The most extreme burgernomics result is against the yuan. According to the Big Mac Index, the Kiwi is 68.1% overvalued against the Chinese currency.
This article is tagged with the following keywords. Find out more about MyNBR Tags
Most listened to
- Niall Ferguson rips into the TPP - and Trade Minister Todd McClay responds
- Why China is key to Vista's growth: CEO Murray Holdaway
- In his Editor’s Insight, Nevil Gibson examines the role of controversial biotech crops in an industry mega-takeover
- NBR's Rob Hosking "the election campaign has started"
- Publisher Philip Macalister discusses the increasing importance of mortgage brokers to banks