Nicholson fired a two-under par 70 today to move to one-under for the tournament as she finds good form ahead of the inaugural New Zealand Women's Open in Christchurch next week.
Outstanding Australian prospect Sarah Oh, 20, who was second in the event last year, has a four shot lead going into the last at Oaklands Golf Club in Parramatta.
The 20 year old, who played on the LPGA last year, followed her opening round 65, a share of a new course record, with a five-under 67 today to move to 12-under par 132.
She is four shots ahead of fellow Australian Katherine Hull, a winner on the LPGA Tour last year, who moved to second place after a 67 today.
European No 1 Gwladys Nocera (France) shot a two-under 70 to be on seven under par 137 and a share of third place with Australian Jenny Lee.
European Tour's Nikki Garrett is fifth on six-under, one shot ahead of a quartet including fellow Australian Sarah Kemp and former world No 1 Laura Davies (England).
Nicholson found excellent form today, turning in three-under after three birdies. She gave one shot back before a superb eagle took her to four-under. Two late bogeys took some gloss off an otherwise strong performance.
Fellow New Zealander Stacey Tate is in a share of 36th place on three-over after a six-over 78 today after her excellent opening round of 69, while Liz McKinnon is at five-over after a 77 today.
Leading scores, LG Bing Lee NSW Open, Oakland GC, Sydney, par 72 (All Australia unless stated):
132 Sarah Oh 65 67
136 Katherine Hull 69 67
137 Gwladys Nocera (FRA) 67 70, Jenny Lee 66 71
138 Nikki Garrett 65 73
139 Susie Mathews 74 65, Laura Davies (ENG) 70 69, Sarah Jane Smith 68 71, Sarah Kemp 71 68.
New Zealanders
143 Sarah Nicholson 73 70
147 Stacey Tate 69 78
149 Liz McKinnon 72 77
159 Wendy Hawkes 83 76
165 Angela Hawkes 81 84
