Defending champion Karrie Webb made a run at the lead but stumbled down the stretch en route to a 74. Webb finished in a tie for third at 6-under-par 210 along with Jackie Gallagher-Smith, Mhairi McKay, Becky Morgan and Rachel Teske.
Davies, who captured last week's ANZ Ladies Masters, got off to a good start with a birdie at the par-4 third.
The 39-year-old had a tough stretch of holes from that point on, however, as strong winds made play difficult at Terrey Hills Golf & Country Club. She had six bogeys and four birdies the rest of the way.
'I was 4-over after 11 holes and I hadn't hit a bad shot,' said Davies. 'It was very tricky out there. Even a slightly bad shot was magnified.'
Davies held the outright lead late in her round but bogeyed the 18th to fall back into a share of first.
'If there's a chance to win, that's all I can hope for going into Sunday,' said Davies. 'Whatever happens after that is in the lap of the gods.'
Strudwick had a much better day. Playing in the morning, she had nine birdies and one bogey for a sizzling 64.
'I just kept hitting it close and making the putts. The first nine was a dream and I only did one thing wrong when I three-putted the sixth hole,' said Strudwick. 'I haven't been in this position for a long time. Tomorrow it's just shot for shot, but I am going to do my very best.'
Australian rookie Rebecca Coakley struggled with a 5-over 77 to finish five shots off the pace. She was joined by Beth Bauer, Karine Icher, Ludivine Kreutz, Lorena Ochoa and Iben Tinning in a tie for ninth.