NZ dollar undervalued - on Big Mac index

According to "burgernomics", the New Zealand dollar is undervalued.

The latest Economist magazine's Big Mac Index rates the NZ dollar as 14 per cent undervalued.

The index is a guide to how far currencies are from fair value and it is based on the theory of purchasing power parity which, in this case, means that exchange rates should make the cost of a McDonald's Big Mac burger the same in every country.

The dollar buys the most Big Mac burger in China where it is about half the price of a burger purchased in the United States.

The British magazine of politics and economics says its index is a light hearted guide to valuing currencies.

It cautions against reading too much into the index because many of the inputs in a Big Mac are sourced locally.

Still, the index shows the British pound was overvalued and is now close to fair value. The euro is 30 per cent overvalued.

In 2007 the magazine had to correct how much it had overvalued the NZ dollar to 5 per cent from a whopping 73 per cent because of a mistake in calculating the cost of a Big Mac in New Zealand.

- NZPA