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Paulsen: 'Excellent chance' of commodity climb if dollar falls

Commodity prices and related stocks rebounded Monday, and while it's too soon to call a bottom following a rout in the commodity complex, closely followed market watcher James Paulsen said Monday the outlook could look brighter within a year.

The biggest factor in a commodities turnaround will be the dollar, the Wells Capital Management chief investment strategist said. If it continues to go higher, commodities will remain under pressure.

However, Paulsen said he believes the greenback has been in "peaking mode" since March.

"With a little bit of dollar weakness and with a bounce—not only in United States growth, but also just globally from all the policy stimulus that we've been enacting—if there's a bounce, then I think commodity prices have an excellent chance of surprising and rising over the next year," he told CNBC's "Squawk Alley."

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A stronger U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies.

Crude futures rebounded from multimonth lows Monday, and gold had its biggest one-day move in seven weeks. Silver and copper were both up about 3 percent.

Meanwhile, the S&P 500 energy and materials sectors led gains on Friday, and industrial stocks rose 1.8 percent.

Paulsen said the rally in names like Caterpillar is more likely due to a technical bounce off the 200-day moving average on Friday than any fundamental change. The announcement that Warren Buffett's Berkshire Hathaway would buy Precision Castparts also likely boosted industrials, he added.

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Still, he said it he felt fine allocating some investment toward industrials, materials and energy.

"You don't have to buy commodities, but you can buy commodity-like stocks in industrials and materials and energy. The Canadian stock market, the Australia stock market are all potential plays on that," he said.