KEY POINTS:
NEW YORK - Currency dealers in the last four months have over-fed themselves on New Zealand dollars, according to the Economist magazine's latest Big Mac index released today.
The price you pay for a Big Mac in New Zealand is the equivalent of spending US$3.59. Americans pay US$3.41 in reality.
The conversion assesses the kiwi as five per cent overvalued against the US dollar.
Back in February, before the huge recent upwards run on our currency, the Economist calculated our dollar as two per cent undervalued against the greenback.
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 magazine said that the index is most telling when used to compare countries at similar stages of development. Most wealthy countries have currencies that are overvalued against the US dollar, including the euro by 22 per cent and the British pound by 18 per cent.
Kiwi strength is largely the result of yield-hungry investors feasting on New Zealand's interest rates, which are among the highest in the industrialised world.
The only major currency not overvalued against the greenback is the yen, which is 33 per cent undervalued. But the magazine said broader measures show the yen is close to fair value and thus does not have to catch up.
SO, HOW MUCH IS A BIG MAC?
(local prices all converted to $US equivalent value)
US: $3.41
AUSTRALIA: $2.95
CHINA: $1.45
UK: $4.01
JAPAN: $2.29
NZ: $3.59
* The actual price of a Big Mac at Queen St in Auckland today is $4.60.
- REUTERS, NZHERALD STAFF
