The 2016 Australian Open champion is in superb form going into this year's event, having also won all four singles at the Hopman Cup, but knows she faces a big test against Barty on Saturday.
"It's nice to make a final at home, but I think in my eyes it's flawless preparation for next week", Barty said after her win. Defending champion Mertens suffered a second-set blip against Watson, victor in 2015, but recovered to earn a 6-4 1-6 6-2 success.
The country's top-ranked female player shook off an early serving funk to come back from two sets down and set up a decider against two-time major victor Kerber, who dismantled plucky Italian qualifier Camila Giorgi 6-2 6-3 on Friday evening.
Barty held just once in the first set but reversed the momentum in the second when she broke in the ninth game after Gavrilova double faulted twice, which prompted the 23-year-old to smash her racquet in frustration and earn a code violation. But I'm feeling good - I'm healthy.
Australia's top-ranked female Ashleigh Barty has fallen short of winning a first title on home soil, losing the Sydney International final to resurgent former world No.1 Angelique Kerber.
"It's nice to make a final at home, but I think in my eyes it's ideal preparation for next week", Barty said.More news: SC to hear plea for probe into judge BH Loya's death
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"I feel like I can fly under the radar a little bit more maybe than other years, but when you are playing well and have that better number next to your name, that is obviously a great thing".
Barty will play in her first home WTA final on after overcoming compatriot Daria Gavrilova 3-6, 6-4, 6-2. "We can go out and have a really good match, go hard at each other, and still shake hands, have a hug at the end of the match, and wish each other the best", Barty said.
Paire sent down 17 aces against the world No.25 to advance to his second semi-final in a week, after reaching the last four in India.
Russian qualifier Daniil Medvedev upset Italian fourth seed Fabio Fognini 2-6, 6-4, 6-1 to reach the Sydney men's final.
Medvedev is eyeing off his first career title after toppling veteran Italian Paulo Lorenzi 6-3, 6-3.