The 34-year-old thought he might be making an early exit when he was three-over after 10 holes of the tournament but four straight birdies followed by the ace on Thursday transformed his prospects.
Five more birdies mixed with a couple of bogeys gave him a second-round three-under-par 69, which was enough to keep him a shot in front of compatriot Brendan Jones (71) and overnight leader John Senden (73) on six-under par for the tournament.
"To have one go in like that turned the tournament right around," Fraser said of the ace at the par three 15th.
"Hopefully we can keep that momentum going over the weekend. I will feel some nerves tomorrow teeing it up but hopefully I'll get stuck into it on the weekend."
South Australian Nick Cullen was alone in fourth after carding a 70 on a day of high scoring at The Lakes Golf Club.
World number four Justin Rose struggled on the back nine as high winds returned in the afternoon but despite four bogeys in six holes after the turn, his 73 was good enough for a share of fifth with five others at three-under.
"My game was feeling pretty tight then all of a sudden it wasn't," said the Englishman. "There's a long way to go and if you'd said after two rounds I'd be three shots off the lead, I'd probably have taken it."
Adam Scott, the top-ranked Australian at number seven in the world, was also among the late starters and his three-birdie, two bogey 71 was enough to keep him in the tournament five shots off the pace.
Eight-times major winner Tom Watson thrived in the calm early conditions to rescue his tournament with a five-birdie 68 after an opening 78 which left him "embarrassed".
The 63-year-old was mightily relieved to make the cut, which was set at three over, with a two-over tally of 146.
"I hate missing cuts, I really do. That means you've failed," Watson said. "I don't think I've ever missed a cut overseas, except at the British Open.
"I've never missed a cut here, never missed a cut in Japan. Let's put it this way, I've never missed a cut in the Australasian area."
Twice Australian Open champion Robert Allenby, who shot a 77, and 2007 winner Craig Parry (73) did make early departures, as did 14-year-old Chinese amateur Guan Tianlang.
The teenager did, however, hit four birdies in his second round 70 and fix up a practice date with Watson next year at Augusta, where he will become the youngest player ever to take part in the US Masters.
"He said I was doing pretty well and he said I am still a kid," Guan said of his meeting with the twice Augusta champion, who is nearly 50 years his senior.
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