Australian Dollar Outlook: AUD/USD Santa Rally Window Approaches
By Matt Simpson, Market Analyst | December 21, 2025
As December progresses, the Australian dollar (AUD) is showing signs of seasonal support, raising hopes among traders for a potential Santa rally in the AUD/USD pair in the final days of the year. However, mixed technical signals and weakening traditional market correlations are tempering expectations, resulting in a cautious outlook for investors.
December Seasonality Brings Modest Optimism
The Australian dollar has increased approximately 0.95% so far this month, in line with its historical average performance during December. Over the past 25 years, AUD/USD has seen an average gain of 0.79% in December, although the median return is a negligible 0.08%, highlighting the often volatile and unpredictable nature of the month’s price action.
Interestingly, when December has been positive historically, the average gain rises sharply to about 3.1%, a level that would push AUD/USD above the 0.67 mark. However, given we are already deep into the month, such a strong rally appears unlikely to materialize at this stage.
On the flip side, technical risks remain evident. Currently trading near 0.6613, a monthly close at or below 0.65 could trigger a bearish shooting star pattern on the monthly chart, compounded by what might appear as a double top formation around the year’s highs near 0.67. Such a technical setup could signal downside risk heading into early 2026. —
Santa Rally Window: Seasonality Insights
Traders should note that late December—starting around the 20th—has traditionally been the period when the so-called “Santa rally” tends to occur. Historical averages show that daily returns improve around this time with more than half of the days yielding positive returns.
Although the Australian dollar has recently retreated from highs, these seasonal tendencies suggest there may still be scope for a short-term bounce in the final days of the year.
It is essential to remember, however, that seasonality serves primarily as a historical observation rather than a guaranteed forecast. Unexpected macroeconomic events can easily override seasonal patterns, so traders are advised to use seasonality as one of several analytical tools.
Shifting Correlations Cloud the Outlook
Another complicating factor influencing the Australian dollar is the recent deterioration of its traditional correlations with other key markets.
- The 10-day correlation between AUD/USD and the US Dollar Index (DXY) has weakened to around -0.5, indicating only a modest inverse relationship.
- The 20-day correlation with DXY is even flatter at approximately -0.1, suggesting that movements in the US dollar are currently less impactful on AUD/USD than usual.
- More notably, the typically positive correlation between AUD/USD and the Chinese yuan has reversed sharply; the 10-day correlation has plunged to near -0.9. This signals a meaningful breakdown in the linkage between the two currencies.
Despite these changes, the Australian dollar still maintains a moderately positive relationship with equity markets such as the ASX 200 and the S&P 500. Both equities indices sit just below the 0.8 correlation threshold commonly associated with strong relationships. If equity markets finish the year on a positive note, the Australian dollar may benefit and grind higher in tandem.
Technical Analysis: A Near-Term Bullish Bias with Caution
Technical chart patterns provide a mixed picture heading into year-end. Last week saw the formation of a bearish engulfing candle on the weekly chart, but not a complete evening star pattern. This result keeps open the possibility of a retracement toward the 10-week exponential moving average (EMA) and the November high near 0.6580. Meanwhile, on the daily chart, short-term momentum indicators are slightly more encouraging: the Relative Strength Index (RSI) (2) touched oversold territory on Wednesday, followed by a bullish doji on Thursday and a Friday inside day that held above the 20-day EMA. These developments suggest potential for another push higher in the near term, with a retest of the weekly volume point of control (VPOC) near 0.6670 as an immediate target.
If investor risk appetite improves further, the 0.67 handle and even the 2025 yearly high remain achievable upside targets.
Final Thoughts
While the setup for a late-year Santa rally in AUD/USD is plausible, it comes with caution due to ongoing technical risks and weakened market correlations. Traders should remain vigilant, employing robust risk management and combining seasonal tendencies with real-time technical and fundamental analysis.
As always, the fate of the Australian dollar will largely depend on global market dynamics, US dollar movements, and equity market performance as 2025 draws to a close.
Related Analysis
- S&P 500 Seasonality: How Santa’s Rally Across Wall Street Stacks Up
- ASX 200 Market Outlook: Santa’s Rally Arrives Early for Materials
- US Dollar Seasonality in December: USD/JPY, USD/CHF, EUR/USD, AUD/USD
This article was prepared using data sourced from LSEG and TradingView.
Follow Matt Simpson on Twitter: @cLeverEdge
Disclaimer: The information provided in this report is for general information purposes only and does not constitute investment advice. Trading forex and CFDs involves significant risk, and past performance is not indicative of future results.