New Zealand's stubbornly high dollar is marginally
undervalued against the greenback, according to a global
price comparison of a McDonald's Big Mac.
The Economist magazine has just released its latest Big Mac
Index, which offers a light-hearted snapshot of whether
currencies are sitting at their 'correct' level.
The London-based publication regularly looks at the prices of
Big Macs in 48 countries and compares them with the American
average, which was US$4.37 on January 31.
A Big Mac in New Zealand currently costs an average $5.20,
which amounted to US$4.32 based on an exchange rate of $1 to
US83.9c.
That showed the kiwi was undervalued by 1 per cent, The
Economist said.
New Zealand was in the company of only three countries whose
currency was 'correct' at present.
The most overvalued currency (by 107.9 per cent) was the
Venezuelan bolivar, where a Big Mac costs the equivalent of
US$9 in the South American country.
India's rupee was found to be the most undervalued currency
(61.8 per cent), where locals could pick up a Big Mac for
US$1.67.
In China, the burger currently costs only US$2.57 at market
exchange rates, meaning the yuan was undervalued by 41.1 per
cent.
A long-term view of New Zealand's position on the index
showed the kiwi was at its most undervalued (42.6 per cent)
in April 2001 and its most overvalued (8.5 per cent) in July
2011.
The high dollar has been a headache for New Zealand
manufacturing bosses, who this week slammed the Government
for failing to control the high exchange rate.
Speaking at a Parliamentary inquiry into manufacturing being
run by Labour, the Greens and New Zealand First, a string of
leaders complained that the high dollar is destroying their
sector.
About 40,000 manufacturing jobs have been lost since 2008,
said Engineering, Printing and Manufacturing Union general
secretary Bill Newson.
"Last year the trend accelerated and we had two companies a
week notifying us they needed to talk about redundancies," he
told the MPs.
Industry heads said the Reserve Bank's single monetary policy
goal of targeting inflation was past its use-by date and it
needed to consider the exchange rate.
Although The Economist has been running its Big Mac index
since 1986, it warns the data should not be taken too
seriously.
"Burgernomics" was never intended as a precise gauge of
currency misalignment, merely a tool to make exchange-rate
theory more digestible."
The kiwi dollar was trading at 83.67 cents this morning.
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