The recent recovery in the price of iron ore has left the Australian dollar undervalued, according to one analyst, who says the domestic currency should be buying about US76¢ instead of the current US70¢.

TD Securities chief Asia-Pacific macro strategist Annette Beacher says in a note this week that the recent pick-up in the price of Australia's biggest single export, and in the volumes shipped out of Western Australia, suggests the Chinese economy is not slowing as much as some fear.

The China-linked rout of the Aussie in recent weeks, then, is overdone, she says.

"Western Australian exports to China shot up in June-July and was behind our 'better-than-expected' trade data recently," she wrote.

"It seems that 'slowing China' is still not significantly dampening appetite for Australia's exports."

After falling to as low as $US44.59 a tonne in early July, the price of iron ore has since climbed to $US57.42. This is despite a surge in volume shipments to China, the world's biggest consumer of the metal and Australia's principal trade partner, during the same period.

This, according to Ms Beacher, should make Australian producers "pleasantly surprised that the price hasn't dropped this time".

In the same period, the Aussie has lost 5.7 per cent, at one point this week hitting a new 6½-year low of US68.96¢. Recent weakness in the local unit has a range of analysts tweaking their end-of-year forecasts, with the most bearish seeing it in the US50-60¢ range.

While the so-called developed world "commodity currencies" of Australia, New Zealand, Canada and Norway have been the worst performing of the G-10 monetary units for more than a year, Britain-based Capital Economics now expects more stability as the price of their exports steady.

Even still, it said on Wednesday that the Australian dollar remained among the "most vulnerable" of the four.

The Aussie's volatility has been particularly marked in recent weeks, seemingly tied to the wild swings in China's sharemarkets.

This link is a radical departure from the market forces normally at work on the Australian dollar, namely domestic terms of trade – the ratio of export prices to import prices – the differential between interest rates in Australia and the US and the price of iron ore.

Despite periods of sharp deviation, the local currency has, until recently, begun to closely track these fundamentals.

With the low Australian dollar now providing support to non-mining exporters and import-exposed domestic industries, the Reserve Bank of Australia has no need to cut the cash rate from its current 2 per cent, after two reductions this year, according to Ms Beacher.

She agrees the bank is also reluctant to further fuel house price inflation in Sydney and Melbourne.

"We continue to expect the RBA to hold the line on the 2 per cent cash rate, with the housing sector not needing any more stimulus," she said. .

"We see the lower Australian dollar providing welcome support for businesses and exporters."