"They still believe they can beat us. There is no doubt they will come ready and prepared feeling like they've got a second chance.
"Because of that they'll play as best as possibly can."
Smith has been burnt by the Kiwis too often in recent seasons to take them lightly. He saw them claim the 2008 World Cup and the Four Nations two years later.
New Zealand also won the 2014 Four Nations, and had beaten Australia in the three consecutive Tests before this year.
"I played in both of those matches where everyone thought Australia would turn up and win and we didn't," Smith said of the 2008 and 2010 losses.
"We're not under illusions about who we are facing this week and what they are capable of doing.
"They are ranked number one in the world. Coming off their match (against Scotland), they'll be desperate to show everyone what they are capable of doing.
"We played them last week and we won, just. They had an opportunity on the bell to beat us. They would've thought they were unlucky not to beat us."