Reserve Bank governor Philip Lowe has warned about a big lift in United States inflation with implications for global markets and the economy.

Key points: Rising US interest rates have led to broad-based appreciation of the US dollar

Rising US interest rates have led to broad-based appreciation of the US dollar Australia's currency has been driven to 20-month lows

Australia's currency has been driven to 20-month lows Financial and economic problems in markets like Turkey, Brazil and Argentina may pose other risks

Speaking in Perth after the RBA board kept the official interest rate at a record low of 1.5 per cent for a 25th month, the governor said the board was keeping a close watch on the possibility of a material lift in US inflation.

The Trump administration has delivered substantial tax cuts at a time when the economy is at full employment and growing quickly, and the governor described it as "an unusual combination, to say the very least".

Adding to the concern is the observation financial markets are not taking this into account.

The governor concluded: "If it did take place it would come as a surprise with repercussions for markets and the real economy."

Rising US interest rates have led to a broad-based appreciation of the American dollar, driving the Australian currency to 20-month lows.

Concerns about a trade war are also driving the domestic currency down, and Mr Lowe warned an escalation of the dispute would have a significant impact on trade flows and global investment.

"Australia has a strong interest in this not happening," he said.

But Mr Lowe also noted a weaker Australian currency, if sustained, could be expected to improve the outlook for both domestic inflation and growth.

Another risk highlighted was the financial and economic problems in a number of emerging market economies, like Turkey, Brazil and Argentina, which could put pressure on parts of the global financial system if they were to escalate.