Just over 20 years ago, The Economist magazine launched an index based on a McDonalds hamburger – the Big Mac index – a practical way of assessing whether a particular currency was under or over-valued against other currencies. It was launched as a light-hearted approach to exchange rate theory, but has had a good track record in predicting the direction of currencies.
· The Big Mac index has some limitations, one being that hamburgers cannot be traded across countries. Additionally, the Big Mac index is updated only irregularly. So, in the same spirit as the Big Mac index, CommSec has compiled the iPod index – a comparison of prices for the popular iPod nano music player across the world. Results released today showed that Apple sold 21 million iPods in the past quarter.
· The CommSec iPod index is a similarly light-hearted approach to assess currency movements. And while the initial results are at odds with many analysts, we will have to wait and see. The index suggests that the US dollar has potential to appreciate against a range of major currencies, with the Aussie dollar around 15 per cent over-valued against the greenback.
Source: CommSec, Apple