In the early years the Australian Open did not have the same prestige as a grand slam tournament (with lower prize money and ranking points relative to other majors) that it does today, so the top overseas players were less inclined to travel to Australia during Christmas time for the event. In 1970 for example only 4 of the female entrants were not Australian and in 1976 all 8 quarter finalists were Australian! During the late 1970s Argentine Guillermo Vilas was a prominent overseas participant and won the event twice while players like Connors and Borg skipped the event. It looks like 1980 was the time that there was a push to see more of the top players playing down under. Players like Ivan Lendl and Martina Navratilova participated for the first time that year.
In the late 1970s only 32 were in the women’s draw. This was up to 128 by the time the event moved to its present home in Melbourne (then Flinders) Park in 1988. During most of the 1990s there were 14-18 Aussie men and 10-13 Aussie women in the singles draws. Since 2004 there have only been 6-9 Australians in both the men’s and women’s draw.
(Data from http://en.wikipedia.org/wiki/Category:Australian_Open_%28tennis%29_by_year and links therein.)