Is the Australian dollar under, or overvalued?

The Economist, a news and international affairs publication created several creative indexes to measure a currency’s purchasing power: The Big Mac index, created in 1986, and the Tall Latte index which was used around 2004. This gives consumers a benchmark as to how their currency adds up to the others worldwide when purchasing such commodities.

With technology in full swing, what better way to measure the purchasing power of a currency using one of the most popular and sought after products?

Enter the iPad index.

According to the CommSec survey, Australia is the fourth cheapest country to purchase a 16GB iPad, after Malaysia, Hong Kong and Japan. The survey suggests that the Australian dollar is fairly valued according to both the iPad and Big Mac index.

There is no fool-proof method to measure the value of currency. With indicators used to measure the value of a currency such as the exchange rate, which measures the performance of a currency as opposed to another in terms of its purchasing power and units, and other factors such as inflation, these indexes can be used as first hand information to measure how our currency adds up to those in other countries, and how it relates with the prices of commodities and goods.

Read more about this on The Age website.