Queenslander Smith leads by one over McLeod and the leading world ranked player in the field and the joint favourite, along with Smith, to win the event, Marc Leishman.
First round leader Matt Jager, Australian Open runner-up Dimi Papdatos and the last man on the course today Christopher Wood of Queensland are another shot back in a share of 4th place with former winner Harold Varner 111 alone in 7th place at 6 under and three from the lead.
Smith began his round five shots behind the morning leader, Dimi Papadatos, but with six birdies in his outward nine of 31 he was bearing down on the lead. He would move closer with birdies at the 10th and 15th but it was McLeod's late stumble which allowed him to move ahead.
Smith felt improvement on the greens gave him the edge today.
"I thought I struck it nicely yesterday and the putts weren't quite going in. I just didn't quite have the speed yesterday. I did a little bit of extra work this morning on the green and it paid off. I was actually getting putts to the hole today, which is nice."
Smith spoke highly of the emerging group of players, many of them his contemporaries, who have played so well of late on the PGA Tour of Australasia.
"There's so many guys that I grew up playing with that were all really good and it's good to see a few of them doing well. I know Jake's had a really good year and good people as well, you want to see him do well. That's kind of the Aussie culture, that everyone's trying to go for each other but not trying to get beaten. It's good."
McLeod threatened to take a substantial lead into the weekend when he played the first few holes of his back nine in 4 under including a 6 foot eagle at the par 5 12th to move two clear of the field but a bogey at the dangerous 13th and the double at the 17th saw him fall one behind Smith who had finished his round 40 minutes earlier.
The double came at the 17th when just out of bounds and although able to gather his thoughts and par the last his blunder will no doubt bother him overnight especially given what is at stake this weekend.
If McLeod was to go on and win this weekend he would not only move close to the top 100 in the world he would guarantee himself European Tour status.
He might be in Europe next year either way as the leading player on the PGA Tour of Australasia’s Order of Merit and not otherwise exempt to the European Tour gets the chance to play European Tour events for one year minimum.
McLeod currently leads that standing and with only Dimi Papdatos and Anthony Quayle (who are both well placed this week) appearing to have any real chance of catching him in the category, a good weekend is very important to the 24 year old.
McLeod - Appeared to have control until a late double bogey.
Leishman also impressed with a second consecutive 68 to be just one off the pace and the weekend battle between he and Smith might well prove to be the highlight of the week.
Leishman finished 4th in this event last year and the four time PGA Tour event winner is all class and that is expected to show over the final 36 holes. Smith, therefore, has a fight on his hands to hold off his World Cup team mate.
Leishman is excited about the prospect of a potential battle between three Australians.
"You know, seems like at these events every year there's always a breakout player who comes up and maybe who you wouldn't expect.
"I don't know Jake, I don't know his game, but clearly he's got a lot of it. It's good to see a new face up there. Hopefully he can continue to play well because at the end of the day you want to see good golf. Even as a player you want to see good golf and you want to see who can win with the best.
"So hopefully we all play well and fight it out, and I would love to be there at the end and hopefully in front. There's a lot of golf to go, it's only halfway done, not even halfway done. Yeah, don't want to get too far ahead of myself. As long as I'm playing good and feeling good on the greens more importantly, which is good."
Leishman looms large in calculations for the weekend
Not that they are the only two in the hunt of course. Dimi Papadatos played well in the early morning conditions of day two and when he finished his round he had the lead before the afternoon field teed off.
Papadatos has made an impressive bounce back from a shattering experience in the final event of the European Challenge Tour where a top five finish would have earned him a European Tour card. he was disqualified during round one for hitting a club damaged in anger but his runner-up finish at the Australian Open and his effort this week suggests that experience is very much in the past.
"I have just put it behind me," he said when comment was made about his bounce back. "I've had a few disappointments in my career and I've just learnt the longer you worry about it, the worse it gets.
"So I just got straight back over here going to the New South Wales Open and just treat it like another tournament. I think just keep doing what I'm doing and stick to the process. The result will come, keep working hard. If I get too upset about it, it doesn't really work out too well for me."
Dimi Papdatos studies a birdie putt at the 16th
The weekend promises so much in terms of Cameron Smith further stamping himself as one of Australia's best of recent times, Marc Leishman attempting to win his first significant title in Australia and the numerous permutations involved in the possibility of Order of Merit standing and European Tour status for several Australians.
Just 36 holes remain of the 2018 PGA Tour of Australasia season but they offer much in terms of intrigue.
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