Big Mac Verdict: Undervalued

Photo / Herald on Sunday

The New Zealand dollar is slightly undervalued, according to the Economist's latest Big Mac index.

The index is its tongue-in-cheek application of the theory of purchasing power parity. At an exchange rate of US71.9c, a Big Mac in New Zealand is 4 per cent cheaper than in the United States, implying the kiwi is 4 per cent below fair value against the US dollar.

By the same measure the Chinese yuan is 48 per cent undervalued.

But the Economist cautions that its "burgernomics" needs to be taken with a pinch of salt, especially when comparing countries with very different levels of income, as most of the burger's cost depends on local inputs such as wages and rents.

Norway's kroner is the most overvalued, by 93 per cent.