The American comes into the season's first grand slam event in blistering form. The winner of 52 of her past 54 matches, Williams claimed the Wimbledon crown, the gold medal at the London Olympics and the US Open title in a stunning second half of 2012.
She also started the new year in imposing fashion, cruising to victory in last week's warm-up event in Brisbane.
When asked if Williams was the main threat to her chances of defending the Daphne Akhurst Memorial Cup, world number one Azarenka admitted: "Yes, I think so."
Williams, a five-time winner in Melbourne, offered a different view.
"I feel like I have to win seven matches. Everyone in this draw has to win seven matches. They have the same opportunity to do it as I do," she said.
"(But) If I can do it, then that would be great."
Williams is the bookmakers' favourite and she conceded there were pros and cons to being so being so heavily fancied.
"I've been the favourite so many times and I've been the ultimate underdog several times," she added.
"I like being the underdog, you don't have so much pressure.
"Being the favourite is fun too because then you feel like you're the one to beat."
Having taken her time to return to full fitness from a serious foot injury and a pulmonary embolism discovered in March 2011, Williams is now looking in the form of her distinguished career.
And while the 31-year-old accepts she is playing well, she refuses to compare her current fortunes with previous periods of dominance.
She said: "I just feel like I am in the moment right now.
"For this moment, I'm playing well. I really hope I can keep it up and continue to play well. I feel really calm and relaxed, I feel really good.
"I don't feel like I am panicking, I don't feel like I am doing anything over the top. I think for me that's key."
Azarenka is sure to lead the challengers, although prospects of a mouthwatering final showdown were dashed yesterday when they were placed in the same half of the draw.
The Belarusian is now fully fit after withdrawing in Brisbane, ahead of a semi-final clash with Williams, due to a toe infection.
Cynics suggested she had pulled out to avoid the possibility of a morale-sapping defeat so close to Melbourne, claims laughed off by the 23-year-old from Minsk.
"There is nothing I could do to make it happen," she insisted.
"I think I made a good choice by the way. I'm feeling good right now."
The main contender from the bottom half of the draw, Maria Sharapova, comes into the tournament under a fitness cloud.
A collarbone injury, detected last month, forced her to miss Brisbane although she is confident she has made a full recovery.
"I am feeling really good," she said.
"Obviously I would have loved to have gone to Brisbane and play that. But sometimes circumstances don't allow that, and that's okay.
"To me I'd rather be going on to the court knowing that I'm healthy. Yes I might be a little bit rusty but I'll work my way through it.
"I'm experienced enough to know the adjustments I have to make in these types of circumstances."
Sharapova is also experienced enough not to be overawed by Williams' form.
"I think everyone reacts to it a little bit differently," she said.
"But there's a reason why everyone's playing here and everyone's in the draw.
"You can't worry about somebody else that's not even close to you in a certain part of the draw. You have to take it a step at a time.
"That's certainly my goal and my job here."