Fears that the Federal Reserve is drowning the global economy in U.S. dollars are overblown and that means that commodities and the Canadian dollar are likely to pull back, according to CIBC World Markets chief economist Avery Shenfeld.

In a new report, Mr. Shenfeld predicts that the Canadian dollar will fall to 93 cents by March and remain there through June.

The economist, often ranked as one of the most accurate, says that while there are lots of dollars being given to banks, they are not spreading into the wider market.

“We suspect that the heavy wave of U.S. dollar selling reflects the mistaken view that the Fed is flooding the world with greenbacks, and that QE is by design a way to debase the dollar by excess supply,” Mr. Shenfeld wrote. “Far from it, while the U.S. monetary base is indeed surging, broader measures of the money supply that are relevant to markets are not.”

“The money created by buying trillions of bonds is simply sitting idle, having been deposited by American banks as excess reserves in their account at the Fed,” he said. Fed chairman Ben Bernanke has vowed to mop all that cash if and when the economy picks up, using operations such as repos.

“If that’s the case, then the surge in the euro and yen, and the more modest run-up in the C$, will be vulnerable to a correction. The most likely trigger will simply be the market getting disenchanted with economic developments in the country whose currencies have been in favour.”

The euro zone still faces the likelihood of a default by Greece and recessions for countries like Spain and Ireland. The strong euro will hamper exports in Germany, Japan and Canada. It's hard to keep a strong currency in that situation, he said.

And if those currencies correct, commodities are likely to do so as well.

“It’s much the same for commodities. While there has been some support from decent growth indicators out of China, most of the upswing in oil, copper and, of course, gold, has been simply the mirror image of the weak dollar as QE talk took hold,” Mr. Shenfeld said. “If, as we expect, the winter sees a correction in the dollar’s favour, don’t be surprised if a bit of the wind is taken out of the commodity ship’s sails as well.”

Mr. Bernanke has pledged to mop that up when the economy starts to pick up.