Aussie Dollar 35% under McValued
Since 1986 the Economist has produced a comparison of currencies based on purchase price of a Big Mac in each country. This weeks Econimist shows an Australian Big Mac at A$3.00 which converts to US$1.62 or 65% of the USA price of a Big Mac of US$2.49.
The conclusion is that the A$ is 35% undervalued against the US$. This is based on "purchasing power parity" - i.e. the excahnge converted price consumers are prepared to pay in one country versus another for an exact equivalent commodity. It implies the A$ should be at an exchange rate of US$0.83 to the A$1 for exact parity. The last time it was at this exchange rate was in early 1989.
Posted Tuesday, 30 April 2002
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