Core Headline – if you are waiting for the ZAR to strengthen to the Big Mac Index implied level, you are going to wait forever…

All things being equal, The Economist’s Big Mac Index has merit.

But when it comes to the USDZAR exchange rate, the index has no merit and placing any value on it is risky. And it is risky because it is way off the mark.

We have modeled this risk, and the results are surprising at first glance but totally self evident thereafter.

Using the USD and ZAR salary differentials across the complete supply chain as key variables we consider that:

high unemployment levels translate into

poor wage levels which manifest in

social instability as measured by

high credit spreads.

We find that there is no extreme over- or under-valuation of the ZAR against the USD.

AfriBizNet – modelling your exchange rate risk solutions.

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