The BLACKCAPS were unable to topple the current world champions at Vidarbha Cricket Association Ground in Nagpur.
The top order failed as they struggled to 206 all out in 45.1 overs, Australia cruising to victory in the 34th over to retain the Chappell-Hadlee Trophy, which was put on the line for the one-off match.
Australia now have two wins while New Zealand have a win and a loss and plenty of work to do just to be competitive in this tournament.
Batting appeared tricky on a slow pitch which displayed variable bounce from the first over but only Martin Guptill, who was bowled by a Shane Watson delivery that almost crept along the surface, could have any grumbles at the pitch over his dismissal.
The remaining New Zealand batsmen largely got themselves out in another top-order batting effort that bordered on inept, allrounders Nathan McCullum and Daniel Vettori again required to make significant contributions for their team to pass 200.
Australia made batting look much easier as Watson (62) and Brad Haddin (55) both scored brisk half centuries in a 133-run opening partnership.
Young quick Hamish Bennett claimed two wickets in the 19th over but did concede 63 runs from seven overs. He was not alone, though Tim Southee fought back late in his spell to end with one for 45 from 10.
New Zealand's decisions on when to review umpiring calls were also poor.
They went upstairs in hope more than anything for a caught behind against Ricky Ponting, but two balls later Southee trapped the Australian captain in front with a reverse swinging ball, it was given not out, and amazingly they did not review it when they had nothing to lose.
After being sent into bat, New Zealand's start was steady enough as they moved through to 66 for two in the 14th over but a double-wicket maiden from left-arm quick Mitchell Johnson, and two quick wickets to speedster Shaun Tait, saw them crumble to 73 for six.
Nathan McCullum, whose stocks as a batsman continue to rise after a measured 52, combined with Jamie How (22), who was a surprise replacement for Jacob Oram in the 11, to put on 48 runs for the seventh wicket and captain Vettori to notch 54 valuable runs for the eighth wicket.
Vettori went some way to rescuing his team again with 44 from 43 balls before he was the ninth man out.
Johnson nicked out Jesse Ryder and James Franklin, the latter after a lazy swing at a wide one just three balls into his innings, in the 14th over then Tait struck twice, finding the edge of Scott Styris' bat with a short ball that would have been called wide had Styris not flayed at it and then bowling Taylor after the batsman played all around a straight one.
Johnson ended with four for 33 from 9.1 overs while the erratic Tait had the rather flattering figures of three for 35 from seven overs.
Earlier, victims of the Christchurch earthquake were remembered.
After a minute's silence, and with players from both sides wearing black armbands, New Zealand linked arms for the national anthem. Shortly before Australia began their runchase, players from both sides stood shoulder to shoulder, forming a circle on the outfield.
As television cameras panned round the ground they found a small knot of Kiwi fans with one spectator holding aloft a simple message written out on a plain white piece of paper: "Thinking of you Christchurch."
New Zealand's third match is against Zimbabwe in Ahmedabad next Friday.