CHART: The Australian dollar has a knack of rallying in late December

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After rallying in Asia on the back of renewed stimulus chatter from China, the Australian dollar enjoyed another solid performance overnight, rising to as high as .7249 before trimming its gains into the New York close.

At .7226, the Aussie is now flat for the month, a considerable performance given at one point it was down close to 2%.

However, the recovery is not all that usual for this time of year, and history suggests that there may be further gains to come in holiday-thinned trading in the days ahead.

The chart below, supplied by CBA’s chief currency strategist Richard Grace, shows the breakdown of the Australian dollar’s historic performance against its US counterpart in December. The blue bars shows the percentage change in the first three weeks of the month, the red the for the remainder – the period we are currently in now.

While not a perfect record, it’s clear that the Aussie has a tendency to outperform in the final weeks of the year, pushing higher in 13 of the 17 years surveyed.

The relationship is not all that surprising given the historic performance of other risk assets in late December. Sentiment improves, and as a widely-regarded barometer of investor risk appetite, the Australian dollar tends to rally.

While past performance does not guarantee future returns, history suggests the Aussie is more likely to move higher than lower in the days ahead.

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