Australia must defeat Fiji in their next pool match to stay alive and in the hunt for Hong Kong sevens title.
Faced with a killer pool, in which they were drawn the Kiwis, Fiji and Kenya, Australia need to win at least two games to qualify for the finals.
After going down to New Zealand on day one, they'll now need to beat Fiji and Kenya.
Still sitting sixth overall, the Aussies have a lot of ground to make up on the top four in the Series - the only teams that will automatically qualify for the Olympics.
NEW ZEALAND 40 AUSTRALIA 19
Australia were made to pay for an oversupply of second-half missed tackles as New Zealand cruised to a 21-point win in their opening pool clash.
Both sides observed a minutes silence for the victims of the Christchurch shooting before the game.
But the Aussies then went down 14-0 early when big Fijian Joseva Ravouvou shedded tackles and raced 70 metres, and Regan Ware added a second soon after.
But Lewis Holland's men rallied, and scored a brace of tries in reply. The first was to Nick Malouf, and after he was pushed into a sponsorship sign after scoring, Australia won a penalty in the middle of the field.
Maurice Longbottom took the tap and when everyone held off him, the speedy playmaker scored untouched.
The pivotal moment came when play continued two minutes after the halftime siren, and despite Australia getting several chances to score, Ravouvou ran the length to score for a 21-14 lead.
Errors at re-starts, penalties and missed tackles then piled up for the Aussies, and pinned them in their own half. New Zealand made them pay, with Sam Dickson, Joe Weber and Jona Nareki all scoring.
Dylan Pietsch scored at the end of the game but it was long gone for the Australians.
FIXTURES
Friday April 5
10:15pm - Australia vs New Zealand
Saturday April 6
4:13pm - Australia vs Fiji
7:33pm - Australia vs Kenya
SQUAD
1. Nick Malouf (vc), 34 caps, University of Queensland
2. Simon Kennewell, Norths (Sydney), 15 caps
3. Jeral Skelton, Brothers, 10 caps
4. Lachlan Miller, Southern Cross University (Coffs Harbour), 2 caps
5. Lewis Holland (C), Queanbeyan, 43 caps
6. Ben O’Donnell, Randwick, 15 caps
7. Tim Anstee, Eastwood, 20 caps
8. Liam McNamara, Sunnybank, 12 caps
9. Henry Hutchison, Randwick, 22 caps
10. Dylan Pietsch, Randwick, 12 caps
11. Maurice Longbottom, Lloyd McDermott Rugby Development Team, 11 caps
12. Joe Pincus, Easts (Sydney), 2 caps
13th Brandon Quinn, Gordon, 14 caps
