The 36-year-old is bidding for a record 20th Grand Slam title and is in form and fit, unlike the Spaniard and the Serb who enter the tournament under injury clouds.
But the father-of-four said at his age and in his 19th Australian Open, he liked to play down his chances.
"With age, I feel like I play down my chances just because I don't think a 36-year-old should be a favourite of a tournament, it should not be the case," the world number two said Sunday.
"That's why I see things more relaxed, you know, at a later stage of my career.
"I feel like maybe somebody like a Rafa, with the year that he's had, and Novak with the six titles he's had here, even if it's unknown how he's feeling, they could very well be the favourites, too."
But he added "at the end of the day, it's all just talk beforehand. The draws are always tough".
Federer, who had an incredible 2017 after returning from injury, winning not only a fifth Australian Open but a record eighth Wimbledon, opens his title defence against Slovenia's 51st ranked Aljaz Bedene on Tuesday.
He faces a potential quarter-final against David Goffin if he stays on track to become only the fourth player ever to win 20 or more Slams – joining Margaret Court, Serena Williams and Steffi Graf.
His preparations have been good.
He comes into the tournament on the back of winning the mixed teams Hopman Cup in Perth with fellow Swiss Belinda Bencic, before his entourage touched down in Melbourne for the usual commitments that come with being a legend of the game.
"Busy. A lot going on with media, sponsors, practice. It was intense," he said when asked if everything was going as planned.
But he added that he had been able to get in as much practice as he wanted.
"It's been constantly playing, practice how hopefully I can play during the Australian Open.
"The Hopman Cup went very well," he added. "I think it's going to be helpful again for me this year because the court plays exactly the same in Perth and here in Melbourne.
"Yeah, practice is perfect. Nothing to complain about."
Against all expectations as he returned from injury, Federer blitzed the field to win at Melbourne Park last year, crowned champion again after an epic final against Nadal.
It kickstarted a memorable 2017, and he said it was his highlight of the year.
"It was the tournament of the year for me, no doubt about it. All the five-setters, as well," he said.
"Having no expectations was so nice after all these years always having expectations, like now this year again."
Federer, who can return to world number one if he wins the title and Nadal loses prior to the quarter-finals, said he wasn't getting ahead of himself, and was only taking it one step at a time.
"My focus needs to be early because I have my own problems, you know, to get through my section of the draw, my game," he said.
"That's my focus, not the other players really further down the line."
He added that it was "just great to be back".
"I'm so, so happy the Australian Open, it's time again. I can't believe it's been a year, but it's OK. I'll make the most of it."
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