Australian young gun Grace Kim (21) led the women's component of the inaugural dual gender event by two strokes from South Korea's former world number one Shin Jiyai and major winner Hannah Green after a blazing start in her seven-under 66 at Kingston Heath.
Micheluzzi rolled in eight birdies in his seven-under round at Victoria Golf Club, with just a solitary bogey on the 10th as he took advantage of gentle morning conditions to upstage the likes of Smith and former world number one Adam Scott (42).
He held a three-stroke lead over home player Matthew Griffin and Josh Geary, the New Zealander carding a four-under 68 at Kingston Heath.
British Open champion Smith celebrated a three-stroke win on Sunday to seal his third Australian PGA Championship in front of a thrilled home crowd at Royal Queensland but slumped to a one-over 71 at Victoria to be eight strokes behind Micheluzzi.
"I need to do better than that. Maybe some kind of delayed tiredness," Smith told reporters after a round of four bogeys.
Smith has been a hot ticket for fans, sponsors and media on his return to Australia after three years away due to the global pandemic, and he felt he had let down the big galleries that followed him.
"I did feel a little bit foggy out there at times but still it's not really an excuse. It's my job to do all that (off-course) stuff."
Smith has until Saturday to make up ground before the field is cut to 30 for the final round of the event which is held across two courses to accommodate the men's and women's fields.
Scott was disappointed with his rollercoaster one-under 71 at Kingston Heath, which mixed seven birdies with four bogeys and a double-bogey on the par-four 16th.
But it might have been a tougher day if his putting did not save him.
"It’s hard to put a finger on it right now," Scott said of his wayward day off the tee and from the fairways.
"Sometimes it’s easier to just say 'that’s golf' and move on to tomorrow.
"I really didn’t have good rhythm or control over the golf club and therefore the ball."
Two months after earning her LPGA Tour card, Kim started from the 10th and birdied her opening five holes before finishing strongly with another three birdies after the turn.
Home favourite and twice major winner Minjee Lee (26) shot a two-under 70 at Victoria to be five behind Kim.
