Switzerland, Norway and Sweden were the three currencies that were overvalued published as The Economist’s Big Mac Index says the Aussie dollar should be 87. “The AUD has made gains since the last index in July 2017, where is was undervalued at 14.6 per cent. “The price of a Big Mac in Australia is $5.90 ($US4.47), meaning it is undervalued by 10.9 per cent (or by 6.4 per cent when adjusted for average GDP), coming ninth on the index and suggesting the exchange rate for the AUD should be around $1.12,” O’Sullivan writes. That implies the euro is undervalued by 8.4 per cent against the dollar.”Ĭurrently, one Australian dollar is worth 80 US cents, with one US dollar worth $1.25. The average cost of a Big Mac in the euro area is €3.95, or $US4.84 at the current exchange rate. “If the local cost of a Big Mac converted into dollars is above $US5.28, the price in America, a currency is dear - if it is below the benchmark, it is cheap. 75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing power parity hold 1. Our basket contains only one item, but it is found in around 120 countries: a Big Mac hamburger,” writes The Economist’s economics editor John O’Sullivan. Suppose a McDonalds Big Mac cost 4.00 in the United States and 3.20 euros in the euro area and 5.20 Australian dollars in Australia. “It is based on the idea of purchasing-power parity, which says exchange rates should move towards the level that would make the price of a basket of goods the same everywhere. That’s according to The Economist’s latest Big Mac Index, which compares the prices of the McDonald’s burger around the world to determine what the “correct” level for a currency should be. IN AN ideal world, the Australian dollar would be 87.2 US cents.
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