By ELLEN READ
The New Zealand dollar needs to rise to 67USc to give us the same purchasing power as Americans - if all either party is buying is a Big Mac.
At 5pm yesterday the kiwi was at 62.93USc and doubts remain how much higher it will go.
The Economist magazine's latest Big Mac index shows the burger costs US$2.90 in America, meaning a local one, at US$2.65, is 8 per cent undervalued (assuming an exchange rate of around 61USc when it was cooked).
While the kiwi has recovered in recent weeks, it is very unlikely to return to its February highs above 70USc and may not climb much above current levels.
The Economist's Big Mac index - which has run since 1986 - compares the cost of a McDonald's Big Mac burger in almost 120 countries to calculate whether a nation's currency is at its "correct" level.
Based on the theory of purchasing power parity, the Big Mac PPP is the exchange rate that would leave burgers costing the same in the US as elsewhere.
Switzerland retains its title as the world's most overvalued currency, with a Big Mac costing US$4.90, putting the Swiss franc 69 per cent above value. In contrast, the cheapest Big Mac is to be found in the Philippines, where at US$1.23 it puts the peso 57 per cent under value.
The Economist points out that the index was never intended as a precise forecasting tool and that it is natural for average prices on non-traded goods to be lower in poorer countries, making their currencies look cheap.
The kiwi was at 89.05Ac at 5pm yesterday after news from Australia that interest rates are on hold and economic growth is slowing.
Kiwi lags in Big Mac stakes
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