O'Hern, winless since 1999, had a 14-under 130 total on the Huntingdale course. The left-hander shot a course-record 64 on Thursday to take a three-stroke lead.
'I hit the ball pretty similar to yesterday, not fantastic but kept it in play and kept making putts, which was nice,' O'Hern said. 'A goal that I always write down at the beginning of the year is not just to win a tournament, but to win a tournament wire-to-wire. It's nice to have that opportunity.'
Allenby, the 2004 tournament winner who is trying to become the first player to sweep the Australian Open, PGA and Masters in one season, shot a 68 after a bogey on his final hole.
'The only disappointment really about 18 is that I fell another shot behind Nick,' Allenby said.
'I know what I'm capable of doing and hopefully I can pull that sort of golf out on the weekend and put some pressure on Nick.'
Watson followed his opening 70 with a 65.
Australia's Martin Doyle (67) was fourth at 8 under, and New Zealand rookie Bradley Iles (69) was 7 under along with Australia's John Senden (70).
O'Hern has 23 top-10 finishes in 51 tournaments in the past two years. He finished third in the HSBC Champions last month in China, was second two weeks ago in the Australian Open and third last week in the Australian PGA.
England's Paul Casey (70) was 4 under, a stroke ahead of Australian star Stuart Appleby (69).
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