The world number one advanced to the final of the London event at the weekend thanks to a straight-sets victory over the Swiss in the semi-finals at The O2.
"What a sensational performance from Nadal," Rusedski told Sky Sports News.
"He really played the big points well and that was the difference between the two especially early on in that game where Federer had those three break points and couldn't convert, he defended them and when he got his chances he connected every time on break point.
"What was impressive from Nadal was his depth. The forehand was going so much deeper and even the forehand up the line. He just had every shot and was the better player."
Nadal will now face Novak Djokovic in the final of the tournament on Monday.