The Australian currency is moderately higher at midday, recuperating in morning trade after dropping one US cent as uncertainty remains over the federal poll outcome.

Investors at first disposed of the local dollar on the prospect of the nation's first hung parliament since World War II. Analysts, however, said the sell-off was an overreaction.

At noon, the local unit was exchanging at $US0.8909, marginally higher than Friday's finish of $US0.8904. The Aussie recouped almost half a US cent after shedding a cent in morning trade.

The Australian dollar rebounded strongly, according to CMC Markets foreign exchange dealer Tim Waterer.

''The market was expecting a bigger fall on equities today, so they priced in a bigger drop off in the Aussie dollar,'' he said.

''When it came on at $US0.8840 that did seem a little bit too low.

''Whilst we did have a hung parliament, you would class that as political turmoil, so I think it was a bit of an overreaction when it came on so low this morning.''

Three independent MPs have vowed to work as closely together as possible in hung parliament negotiations with Labor and the Coalition, but final results may not be known for more than a week.

With equities fairly flat, the local unit managed to exceed $US0.8900 by midday.

''That's probably a fair level for it at this stage,'' said Mr Waterer adding that any further gains in afternoon trade would be ''capped.''

He forecasts the Aussie would trade between $US0.8850 and $US0.8930, depending what sort of mood the offshore markets are in.