FATAL: database "postgres" does not exist

Weird error. All help appreciated.

Here's my database.yml

development:
  adapter: postgresql
  encoding: unicode
  database: app_development
  pool: 5
  username: username
  password:

test:
  adapter: postgresql
  encoding: unicode
  database: app_test
  pool: 5
  username: username
  password:

production:
  adapter: postgresql
  encoding: unicode
  database: app_production
  pool: 5
  username: username
  password:

When I create the databases manually and try to use them, for example rake db:test:preare I get the following error:

FATAL:  database "postgres" does not exist

When I try to drop the databases I get the following errors:

Couldn't drop app_development : #<PG::Error: FATAL:  database "postgres" does not exist
>
Couldn't drop app_test : #<PG::Error: FATAL:  database "postgres" does not exist
>
Couldn't drop app_production : #<PG::Error: FATAL:  database "postgres" does not exist

If I try to create the databases through with rake db:create:all I get the following errors:

app_development already exists
app_test already exists
app_production already exists

So it appears that my database.yml is ok. But for some reason it's looking for a database called postgres when that's not what's in my database.yml.

Any help appreciated.

EDIT:

Here is more from the trace of rake:

Couldn't create database for {"adapter"=>"postgresql", "encoding"=>"unicode", "database"=>"app_production", "pool"=>5, "username"=>"username", "password"=>nil}