Australia, written off before this year's Tri-Nations tournament started, go into Saturday's match with the assurance of a come-from-behind 20-15 win over the All Blacks in Melbourne three weeks ago, and Waugh wants confidence levels in the team to continue to grow.
"We have got a psychological boost out of the last three performances and this game if very important," Waugh said before the Wallabies left for New Zealand on Wednesday morning.
"The challenges of going to Eden Park and facing the All Blacks in a Bledisloe Cup decider - games don't come much bigger - so it is going to be big challenge and a good experience for the guys."
Despite not having beaten New Zealand in a series since 2002, Waugh claims the team believes in itself and feels it is quickly closing the gap between the two nations.
"I think among this group we have never thought the gap is too big," explained Waugh.
"We respect the way New Zealand play and their success in recent times. But we know we can beat them, so we have never thought the gap was too big at all."
Waugh, who has been selected on the bench behind openside flanker George Smith in the Wallabies team for this weekend's clash, believes Australia's loose forwards will have a battle against what he rates as the best flankers and number eight in world rugby.
"I think with Richie (McCaw), Rodney (So'oialo), Jerry (Collins), Reuben (Thorne) and Chris Masoe they have five very good back-rowers there, so it doesn't matter which ones they pick it is going to be a huge challenge."
Waugh stopped short of any criticism of All Blacks skipper Richie McCaw, who has been subjected to "cheating" claims from the Springboks lately, and the New Zealand media saying he is not on top form.
"He probably seems like he is off his game because he has been so good for so long," Waugh remarked.