Finch had damaged his left hamstring during the 27-run loss in the second match at the MCG on Friday.
Watson’s appointment followed a recommendation by the National Selection Panel that was approved by Cricket Australia’s Board of Directors.
“It is an honour to be asked to lead the side on Sunday, although the circumstances are far from ideal. We may have lost the series but there is a great deal to play for with the ICC World Twenty20 coming up and you can be sure we will be determined to do well in Sydney,” Watson said.
Finch has been replaced by prolific batsman Usman Khawaja in the side.
Watson is Australia’s second most experienced T20I player with 51 caps, only David Warner (54) has appeared more often for Australia in the shortest form of the game.
Watson will become the ninth player to captain Australia in T20Is. He has previously captained Australia in one Test and nine One-Day Internationals in 2012 and 2013.
The 34 year-old all-rounder is Australia’s leading wicket-taker in the T20I format with 41 victims and his tally of 1191 runs is second only to Warner’s haul of 1465 for his country.
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