Sunday, December 7, 2008

Australian Dollar -- It's Cheap

I've been meaning to write an in depth report on the Australian Dollar, but I'm finding it hard to put together anything too thorough. so we're just going to start with a series of short posts outlining some of the various aspects that may exert some influences on the future movements of the currency.

the AUD is pretty darn cheap on a Purchasing Power Parity basis

I hope you are familiar with the Big Mac Index because when I say the currency is cheap this metric is about all I'm basing that assertion on. the index just tells you what the burger will cost you in each country. the more expensive the burger the more 'over-valued' that country's currency is considered to be. if you look at the table (click here, but do come back) you will see that a Big Mac in OZ at A$3.45 (US$2.23) costs less than anywhere else in the 'developed' world as well as some 'emerging' places like Peru and Brazil. the price in Australia is comparable to the prices in countries such as Singapore, Taiwan, South Korea, Mexico, Chile and Poland. but in China, Hong Kong, Indonesia, Malaysia and Russia you can get a burger somewhat cheaper than you can Down Under (though Russia's only slightly cheaper).

these Big Mac prices are but one reason to look positively on the AUD right now. if it were the only reason I wouldn't be wasting my time on this market. but there are other reasons to compliment with this one, reasons that seem less apparent to the market right now. more posts to come.