CANADA FX DEBT-C$ weakens as oil retreats, export volumes fall

* Canadian dollar at C$1.3303, or 75.17 U.S. cents
    * Bond prices slightly higher across the yield curve

    By Fergal Smith
    TORONTO, Dec 6 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Tuesday as oil fell and domestic
trade data showed a disappointing drop in export volumes.
    Canada posted a smaller-than-expected trade deficit of
C$1.13 billion in October, down from a record C$4.38 billion
shortfall in September, when a one-time shipment of oil
machinery boosted imports, Statistics Canada data showed.
    "What the Bank of Canada will pay more attention to is the
seven-tenths decline in export volumes on the month," said
Scotiabank Vice President Derek Holt. "That plays to the concern
that the (third-quarter) export surge was transitory."
    Prices fell for oil, one of Canada's major exports, as data
showed output rose for most major producers despite plans for
curbs by the Organization of the Petroleum Exporting Countries
and Russia. 
    U.S. crude prices were down 2.39 percent at $50.55 a
    At 9:20 a.m. EST (1420 GMT), the Canadian dollar 
was trading at C$1.3303 to the greenback, or 75.17 U.S. cents,
weaker than Monday's close of C$1.3276, or 75.32 U.S. cents.
    The currency's strongest level of the session was C$1.3253,
while its weakest was C$1.3311.
    On Monday, the loonie reached a more than six-week peak
against the greenback at C$1.3236, helped by recent
stronger-than-expected domestic data and the agreement by major
oil producers to cut output.
    Still, the Canadian dollar is expected to weaken over the
coming months as likely monetary policy divergence overshadows
higher oil prices, a Reuters poll found. 
    The Bank of Canada is widely expected to hold interest rates
at 0.50 percent on Wednesday, with investors focused on the
policy statement for any mention of how the U.S. election of
Donald Trump could affect the Canadian and U.S. economies.
    The implied probability of a rate hike by mid-2017 was
nearly 20 percent, overnight index swaps data showed, little
changed from before the trade data. Just one month ago, there
was a 30 percent probability of a rate cut. 
    Canadian government bond prices were slightly higher across
the yield curve, with the two-year up 2.5 Canadian
cents to yield 0.729 percent and the benchmark 10-year
 rising 7 Canadian cents to yield 1.62 percent.
    On Thursday, the 10-year yield touched its highest in more
than one year at 1.712 percent.  

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn)