By Aaron Hankin

British pound was showing small gains at $1.2742

The Australian dollar rallied by as much as 1% on Monday after the incumbent Liberal-National government retained power in a surprise election result, defeating the favored Labor party.

The Aussie traded to an intraday high at $0.6937 versus the greenback, up more than 1%, compared with late Friday and in more recent trade, the currency was at $0.6914.

Read:Australia's Conservatives set to form majority government after surprise election win (http://www.marketwatch.com/story/australias-conservatives-set-to-form-majority-government-after-surprise-election-win-2019-05-19)

What are analysts saying

"The Australian currency is recovering ground on Monday, after the nation's federal election produced an upset victory for incumbent PM Scott Morrison, defying opinion polls that had predicted a win for the opposition. Morrison has promised a fiscal boost for the economy, mainly via tax cuts, which is probably what has lifted the Aussie today," said Marios Hadjikyriacos, investment analyst at XM, in a note.

The Aussie has dragged the neighboring Kiwi dollar higher, which was most recently trading at $0.6536 versus the U.S. dollar.

Read:The stock market punished earnings misses more than it rewarded earnings beats (http://www.marketwatch.com/story/the-stock-market-punished-earnings-misses-more-than-it-rewarded-earnings-beats-2019-05-17)

The majors

The ICE Dollar Index, which measures the buck's strength against six trading rivals, was marginally lower at 97.907.

The euro rose to $1.170 compared to $1.1159, while the British pound was a little lower at $1.2742.

"This week, the biggest risk for sterling [is] the EU parliament elections on Thursday. Opinion polls suggest the Conservatives will get crushed, with many of their voters defecting to the new Brexit Party. Such a poor showing could add even more pressure on the Tories to rebrand their image by replacing May with a more 'leave friendly' leader, like Boris Johnson, consequently keeping the pound under pressure," Hadjikyriacos added.

Yen marginally higher as equities falter

The Japanese yen rose 0.2% to Yen109.91 as investors sought out assets deemed as havens in the wake of falling equity prices.

In midmorning trade, the Dow Jones Industrial Average fell 90 points, or 0.3%, the S&P 500 was off 0.4% and the Nasdaq Composite was down 1.2%.

Read:Brexit Brief: May launches last-ditch push for her EU exit deal (http://www.marketwatch.com/story/brexit-brief-may-launches-last-ditch-push-for-her-eu-exit-deal-2019-05-20)

On the calendar

The Chicago Fed national activity index fell to negative 0.45 in April, down from positive 0.05 in March.

Read:Chicago Fed national activity index falls in April, tugged lower by factory slump (http://www.marketwatch.com/story/chicago-fed-national-activity-index-plunges-in-april-tugged-lower-by-factory-slump-2019-05-20)

(END) Dow Jones Newswires

May 20, 2019 12:27 ET (16:27 GMT)