Dollar sluggish ahead of Fed minutes The Australian dollar has softened slightly ahead of the release of the US Federal Reserve's December meeting minutes, which investors hope will provide more guidance on how the central bank's plans to wind back its stimulus program this year. The currency was weaker against a range of currencies, including the US dollar, today. Traders broadly looked through new data showing that the construction sector had expanded at a slower pace in December. The dollar was fetching 89.30 US cents in late trade. The US dollar strengthened overnight after new figures showed that the US trade deficit narrowed in November as oil imports fall and exports rose to a new high. Foreign exchange traders have been waiting for further guidance from the Fed in its minutes on how it would wind back its $US85-billion-a-month ($95.3-billion-a-month) asset purchases program. The central bank said in December it would start to reduce its monthly program by $US10 billion this month, and it expected the tapering to be "in further measured steps at future meetings." "In the post-meeting press conference, [Fed chairman Ben] Bernanke indicated that the Fed could look to do similar steps at the subsequent minutes, so we inferred that to be about $US10 billion per meeting," said Commonwealth Bank currency strategist Peter Dragicevich. If they give more clarity around the timeline, that would be quite key for us. Australian dollar to remain resilient? The US dollar is expected to strengthen, which would see the Australian currency weaken, if the Fed appears more bullish about the American economy and takes a more hawkish view of its tapering plans, analysts said. The Federal Open Market Committee (FOMC) minutes will be released at 6am AEST tomorrow. But the local currency is expected to remain resilient even if the Fed does adopt a more hawkish stance in its minutes, as it has recently been firmer against European currencies such as the euro and the Sterling pound, Mr Dragicevich said. We think that Aussie-euro can bounce back a little. We've seen the euro come off so far this year and there was some temporary factors at play that helped support the euro into the year-end that are fading away now," he said. Given the very low inflation numbers that came out last night in Europe, we think the ECB will remain quite dovish, and that would keep the euro on the back foot. The European Central Bank (ECB) is set to meet at its monthly policy meeting on Friday morning AEST. Citi currency strategist Todd Elmer said he did not believe the minutes would shift market expectations of "benign thinking" by the Fed and that a rise in US interest rates would remain a long way out. The minutes could therefore see the US dollar weaken against most currencies, he said. I think the question is whether or not Aussie is well positioned to benefit from broad US dollar weakness. And I think the answer to that question is no. We have stabilised somewhat but we are still weighted to the downside in terms of Aussie," Mr Elmer said. He said the Australian dollar was being weighed down by the slowdown in mining investment and the reduced diversification in the reserve portfolios of Asian countries. Their holdings of Aussie have been climbing over the past several years in the wake of the financial crisis. I think they have hit levels that are going to make reserve managers uncomfortable adding to - at a time when the fundamental reasonings for holding Aussie is weakening," he said. The lack of these factors, which have contributed to the Australian currency's strength, would make it more vulnerable to further attempts by the Reserve Bank to talk down the dollar this year, Mr Elmer added. Future direction of US interest rates Further guidance on the future of US interest rates, which are currently at ultra-low levels, would also be keenly watched by currency traders, strategists said. "[The Fed has] just indicated that rates will be on hold until the unemployment rate is well below 6.5 per cent, so if they give a more definitive threshold there, that would probably be of interest," Mr Dragicevich said. The recent fall in the yields of 10-year US Treasuries, which have typically risen on the back of tapering expectations, meant that investors believed incoming Fed chair Janet Yellen would be less aggressive in her approach to monetary policy, BK Asset Management managing director Kathy Lien said. At the same time, changes in the members of the FOMC this year could alter the level of hawkishness or dovishness of the Fed, and thus its approach to monetary policy as the world's largest economy emerges out of a period of extraordinary monetary policy, Ms Lien said in a research note. While Ms Yellen has been portrayed as a dove who would continue the accommodative approach of outgoing chair Mr Bernanke, Ms Lien said the rotation of hawkish FOMC members such as Philadelphia president Charles Plosser and Dallas President Richard Fisher into voting positions could see the central bank take a more hawkish stance this year as compared to 2013.