Kerber was well below the form that saw her triumph in Melbourne 12 months ago and then at the US Open later in 2016, losing serve five times as she suffered a shock 7-6 (7/5) 6-2 defeat to Russia's Daria Kasatkina.
With the year's first major less than a week away, Kerber will be under pressure having won only once in three matches this year, with her latest defeat following on from a surprise quarter-final exit in the Brisbane International last week.
WTA Sydney
Strycova wins thriller against Wozniacki in Sydney
11/01/2017 AT 11:54
The 28-year-old German's setback was the latest in a string of upsets as three other seeds crashed out in Sydney.

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Slovakia's Dominika Cibulkova, seeded third, went down 6-4 6-3 to Canadian wildcard Eugenie Bouchard, while Anastasia Pavlyuchenkova saw off fellow Russian and fifth seed Svetlana Kuznetsova 7-5 6-3.
Ninth seed Roberta Vinci was brushed aside by Barbora Strycova, who claimed a 6-2 6-3 victory, but there was better luck for Caroline Wozniacki, the 10th seed defeating Yulia Putintseva 6-0 7-5.
WTA Sydney
Konta through to last four in Sydney
11/01/2017 AT 07:21
WTA Sydney
Konta through to Sydney quarter-finals
10/01/2017 AT 08:56