Peter Lonard, who shared the first-round lead with Moseley, is alone in third place at 11-under-par 133.
John Daly, the two-time major winner whose mother passed away last week, was disqualified after Friday's round when he failed to sign his scorecard. He shot a 78 and threw his putter and ball into a lake at the end of play after a disputed rules call on the 13th hole.
Daly's tee ball at 13 landed in water along the left side. A rules official was called in when Daly's playing partner Craig Parry suggested he was dropping from an incorrect spot.
The rules official saw the shot on a replay and agreed with Parry that Daly should drop closer to the tee box. Daly whacked another driver from the fairway but ended up with a triple bogey on the hole.
'I thought the ball landed where we made him drop it,' Parry said. 'J.D. thought it crossed the hazard farther down. No one wants this. It's just one those things.'
Moseley struggled early with a bogey at No. 1 but that was his last mistake of the round. He birdied three holes on the front nine before he missed the green at No. 9. It did not matter as Moseley chipped in for birdie and a front-nine 33.
Moseley birdied the 10th and 12th holes and polished off his round of 66 with a birdie on No. 17.
Baddeley had a wild round on Friday with nine birdies and two bogeys for a 65. In the first two rounds, Baddeley has notched a whopping 17 birdies but has recorded five bogeys.
'Today I felt good about my golf swing and it seemed to get better as the day went on,' Baddeley said.
Nick O'Hern, Adam Le Vesconte and Tony Carolan share fourth place at 8-under-par 136. Adam Scott, Greg Turner and Greg Chalmers are tied for seventh at minus-7.
Greg Norman shot a 67 Friday and is tied for 12th place at 5-under par, while Stuart Appleby matched Norman's 67 and is two strokes behind Norman at minus-3.
Full-field scores from the Australian PGA Championship