The youngster who saved nine of 11 break points was heavily tested in the final set as he battled the experienced Nadal all the way to a tiebreaker.
"But to beat a player of this category, of this talent, is very inspiring for me, a huge confidence boost".
Nadal would have become No. 1 in the world if he had defeated Shapovalov and the victor of match between Chung Hyeon and Adrian Mannarino on Friday. He faces another tough test against a red hot Nick Kyrgios, but if he can keep digging out wins under tough circumstances, his future might be about to get even brighter.
Shapovalov, 18, was the youngest player since Nadal in 2004 to reach the round of 16 in a Masters Series tournament.
Federer, ranked No. 3 in the world by ATP, cruised by Polansky 6-2, 6-1 in his first Canadian Open match since losing to Jo-Wilfried Tsonga at the 2014 final in Toronto. When asked about his swimming prowess, Shapovalov later added: "I can proudly say that I have mastered the doggy paddle technique". Rafa is such a warrior. I was rather anxious about how I was going to come out of it", Federer said, "When I did come out of it, I was happy I woke up again, but I was sad that I had an operated knee.
The 31-year-old Nadal would have returned to No. 1 in the world if he reached the semi-finals.
Upon winning the match, the 18-year-old fell to the court with the Uniprix Stadium fans cheered deafeningly in the night.
"He has great potential", said the No. 1. The day before yesterday the Swiss player celebrated his 36th birthday, and he couldn't wish for a better way to enter in the new year of his life.
Speaking with media afterwards, Nadal was unhappy with the way he played while giving credit to Shapovalov for his resolve during the big moments of the match. It was nearly a repeat of the score line from their match in Toronto where Federer won 6-2 6-0.
The two victories for the top seeds served as a stark reminder to the rest of the draw what these two are capable.
However, Nadal will face teenage sensation and local favourite Denis Shapovalov in the third round on Thursday, August 10.
Returning to play at the Rogers Cup in the Canadian city of Montreal on Wednesday (NZT Thursday), Federer's dominance was on show as he crushed local hope Peter Polansky 6-2 6-1.
"Fifteen-times Grand Slam champion Nadal has spent a career total of 141 weeks as world number one " seventh on the list. It started with a win in Vienna in 2003.
"It's a good victory for many reasons", said Monfils.
"I was No. 1 in the world".
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