The Australian dollar has rebounded overnight after two days of steep falls sparked by Chinese currency devaluations.
The dollar was trading at US73.8&cent; on Thursday morning, up from its low of US72.15&cent; on Wednesday. 
The Aussie's recovery was due to the US dollar falling one per cent, after two days of buying cooled amid concerns the incoming US Federal Reserve interest rate rise may be delayed amid the yuan initiated increased volatility.
"While the depreciation seems small in the scheme of things, the announcement is a game-changer, but a key unknown at present is how far the yuan will be allowed to depreciate," Perpetual head of investment strategy Matt Sherwood said.
"But the larger the decline, the more rising import prices will ease endemic deflationary pressures, but it may also limit how far the US Fed can raise rates given the rising US dollar has already tightened financial conditions."
Despite the rising Aussie dollar, it is yet to return to its Monday high of US74.4&cent; and Chinese yuan-induced drops could continue, ANZ currency strategist Daniel Been said on Wednesday.
"The Chinese came out and set the fixed midpoint a touch above its close yesterday so they're still on the depreciating pattern. While they (the People's Bank of China) said this morning that this isn't the beginning of a broader trend, it does seem like a new regime and a higher volatility dynamic for it and that's hitting assets all over."
Australia, as well as other China's major trading partners such as South Korea, Malaysia and Taiwan have all been hit by the shifting yuan.
Capital Economics analysts said it was likely these trends would likely continue if the yuan continues to lose value, but in a limited way.
"We do not expect recent moves to turn into a rout. For a start, if the People's Bank of China is going to allow the market to play a greater role in determining the renminbi's exchange rate against the dollar, we do not think it will be long until sentiment starts to improve as signs emerge that the economy is stabilising."
Until then, a destabilised economy that is also the major consumer of key Australian exports such as iron ore and copper could wreak further havoc on the dollar.
"Given the potential for this devaluation to add further pressure to an already reeling iron ore market, we could see the Aussie under significant pressure over the short term," OANDA Australia and Asia Pacific senior foreign exchange trader Stephen Innes said on Wednesday.