Brett Rumford has a two-shot lead after the second day's play at the ISPS HANDA World Super 6 in Perth.
The Australian shared the lead with England's Mark Foster after the opening round but carded a seven-under 65 to take the advantage, with countryman David Bransdon posting an impressive 64 to move into second.
A clutch of home players occupy the upper echelons of the leaderboard, while Smith went two-under to drop back to 17th, one shot behind England's Ryan Evans and Scotland's Duncan Stewart.
Top seed Alex Noren just failed to make the cut after he was unable to recover from his two-over round yesterday with a round of 69.
An unusual new format in the competition will see the remaining players now face a regular third round, with the top 24 after 54 holes advancing to a matchplay shootout on Sunday.
Neil Wilkes
