Nadal will end the year as the world No.1 but Federer is the favourite to triumph at the O2 in the season-ending event, which begins on Sunday, having won the title six times previously.
The two old rivals are expected to get to the final in London, as long as Nadal can stay healthy given his recent knee issues, and his coach, who is stepping down from his role after the tournament, is wary of Federer.
"It is clear [Federer] is the favourite," he said in Marca. "His level has been very high all year. If Rafa can find his best, then we will see.
"The surface will also have an impact."
Carlos Moya, who is already working with the Spaniard, will become Nadal's main coach from 2018 when 'Uncle Toni' ends his working relationship with his nephew - a spell that has seen the 31-year-old amass 16 Grand Slam titles.