Oct. 14 (Bloomberg) -- JPMorgan Chase & Co. raised its forecasts for the Canadian dollar on expectations the central bank will increase interest rates by the end of the year and after prices for its commodity exports rose.

The Bank of Canada lifted its benchmark rate Sept. 8 for the first time in 17 months and signaled it may increase borrowing costs further to keep inflation in check. Fifteen of 17 economists surveyed by Bloomberg News expect the bank to boost its rate a quarter point at its next scheduled chance on Oct. 19.

``The market is still too cautious in how much it expects the Bank of Canada to hike interest rates,'' said Paul Meggyesi, a currency strategist with JPMorgan, in an interview from London. JPMorgan predicts the central bank will lift is main rate a quarter percentage point on Oct. 19 to 2.5 percent and to 4 percent by the end of September.

JPMorgan increased its forecast for the Canadian dollar to C$1.24 per U.S. dollar by the end of March from C$1.27, in a report to clients. It boosted its estimate for the end of June to C$1.27 from C$1.30 before. The Canadian dollar traded at C$1.2568 at 12:10 p.m. in London.

``The big surprise to everyone's forecast has been the continued surge in oil prices,' Meggyesi said. ``As a commodity and energy exporter, Canada enjoys a current-account boost from any maintenance of high energy prices.'' JPMorgan is the fourth- largest trader in the daily $1.9-trillion currency market, according to an annual survey by Euromoney magazine.

Trade Surplus

Canada's trade surplus in July, the most recent month, was the third-highest on record, buoyed by a 1.9 percent increase in energy exports. Crude oil futures in New York have gained 66 percent this year.

The bank also cut its year-end forecast for the Swiss franc to 1.25 versus the dollar from 1.19. It now forecasts the franc at 1.23 a dollar by March 31, instead of 1.18, after lowering expectations for further interest-rate increases by the country's central bank. Switzerland's currency recently traded at 1.2496 per dollar.

JPMorgan expects the Swiss National Bank to lift its benchmark rate to 1.25 percent by March, down from its previous prediction of 1.5 percent. The rate is currently 0.75 percent.

Britain's currency may also decline on reduced expectations for central bank interest-rate increases, according to JPMorgan. The bank cut its forecast for the pound to $1.76 at the end of March, from $1.79. It projects the pound at $1.72 on June 30, compared with $1.74 previously.

The bank maintained its year-end forecast at $1.79. The pound was recently at $1.7995.

JPMorgan last week cut its forecasts for U.K. economic growth and the Bank of England's benchmark interest rate, after reports showed slowing growth in Britain's services industries and falling manufacturing production.

The U.K. central bank will keep its main interest rate at the current 4.75 percent through all of next year, JPMorgan predicts, after previously expecting a further increase in February to 5 percent.

To contact the reporter of this story: Yumi Kuramitsu in Hong Kong ykuramitsu@bloomberg.net

Last Updated: October 14, 2004 07:26 EDT