The Canadian dollar closed down two cents Thursday amid a flight to the U.S. dollar.

The loonie's official Bank of Canada close was 97.33 cents US, down 2.08 cents.

On Wednesday, the loonie closed below parity with the U.S. dollar for the first time since late January of this year.

The heavy shift into the U.S dollar began after the U.S. Federal Reserve announced a plan aimed to push down longer-term U.S. borrowing costs. However, the Fed also warned of "significant downside risks to the economic outlook, including strains in global financial markets."

Traders also worried above a slowing Chinese economy. Bank HSBC reported that its preliminary China manufacturing purchasing managers' index fell to a two-month low in September.

Camilla Sutton, chief currency strategist at Scotia Capital, said several trends are making markets nervous, and investors are moving away from riskier assets like commodities and the Canadian dollar and into the bonds denominated in U.S. dollars, which are the easiest to sell.

"We have global growth expectations coming lower, both from what the Federal Reserve said yesterday in terms of there being significant downside risks, as well as overnight in China we’ve got a weaker-than-expected PMI that essentially tells us that China’s manufacturing base is a little bit weaker than we thought, and we have ongoing risks coming out of Europe and the markets are all en masse trying to scale back," she told CBC News.

"There still could easily be more weakness in the Canadian dollar in the days and even weeks ahead.

"Most of the currencies are very weak against the U.S. dollar, which creates some wild and exciting times," she said

"We have to see this period of risk aversion play out before we have a real idea of where the Canadian dollar is going to settle over the next three months."

'Most of the currencies are very weak against the U.S. dollar, which creates some wild and exciting times.'—Camilla Sutton, chief currency strategist, Scotia Capital

The dollar's decline makes Canadian workers and goods appear cheaper, helping to spur the economy, but it also highlights the growing fear that another global recession could be occurring.

"The decline in the currency itself is good news for manufacturing and anything else that we sell to foreigners. The bad news is the context for the dollar's fall is the fear of another world problem that would make things worse," said Jim Stanford, an economist at the Canadian Autoworkers Union.

Bruce Cran, president of the Consumers' Association of Canada, said the loonie is still close enough to parity that it likely won't have much impact on consumer behaviour — Canadians will continue to travel and cross-border shop, even though they're getting less bang for their buck.

"I wouldn't expect that type of drop to have any effect at all, after all, it's been up to $1.04 to $1.06 recently and that hasn't provided any relief for consumers."

For consumers, a loonie below parity raises the cost of both everyday expenses, such as the cost of imported produce at local supermarkets, and sporadic splurges, such as international travel packages.

A lower loonie isn't necessarily bad for the travel industry because it stimulates the economy, increasing Canadians' willingness to spend on luxuries, said David McCaig, president of the Association of Canadian Travel Agencies.

"A lower loonie may help businesses, which means that you're still employed, which means that you have money and vacation time to go on holiday," he said.

Travel agencies have been reporting strong sales of winter break travel packages, which were booked when the loonie was higher, he said.

"Obviously, if it dropped down to 85 cents or something that's a much different story," he added.

With files from The Canadian Press