The Spaniard took on Dominic Thiem in a surprise clash on Margaret Court Arena on Friday.
I dont want to be overconfident, but Im very, very happy with how it went today, added the 30-year-old. However, while my head may be saying that Muguruza will be emerge victorious come the end of January, I have a feeling that Johanna Konta will become Britain's first female grand slam champion since Virginia Wade in 1977.
The Swiss master begins the year as the number two ranked player in the world.
In the quarter-finals, Federer could run into Juan Martin del Potro, who is set to return to the top 10 or ATP World Tour Finals runner-up David Goffin.
Djokovic looked in good form and full of optimism as he played the first competitive match since his withdrawal from the Wimbledon quarterfinal against Tomas Berdych due to injury.
A knee injury which has prevented Nadal from playing competitively since losing to David Goffin at the ATP Finals in November has restricted the 16-time major champion to just a pair of exhibition contests in Melbourne - a far cry from his run to the quarter-finals at the Brisbane International past year. He delayed his return until two exhibition appearances this week.
While Angelique Kerber has slid down the rankings, and is seeded just 21 for this tournament, as a multiple Grand Slam champion and former Australian Open victor, she should not be losing in the early rounds.
Federer was coming off an extended injury break and was seeded 17th at last year's Australian Open when he beat Nadal, who was seeded ninth, in five sets in the final.
In the women's draw, top seed Simona Halep will face Australian wildcard Destanee Aiava in the opening round and could face two-time Wimbledon champion Petra Kvitova in the third round.
Australian Open men's singles trophy - the Norman Brookes Challenge Cup - and the women's singles trophy - the Daphne Akhurst Memorial Cup - on display ahead of the 2018 draw.
On the women's side, Serena Williams is not defending her title as she regains her fitness after childbirth, leaving the family interests in the hands of defending finalist Venus Williams.
Maria Sharapova [16.0] will get plenty of attention, after re-entering the top 50 for the first time since her ban.
"He could always get picked off early", McEnroe said.
With the win, the 12-time Grand Slam champion's chances of playing in the first major of the season - Australian Open- have also boosted.