They went down 3-6 to an Australian side in brilliant form while hosts Canada beat Japan 7-2 at a pristine Le Club Laval-sur-le-lac course in Quebec.
New Zealand trailed 1-2 after the morning foursomes with the Auckland combination of Ryan Fox and Ben Wallace gaining the win over Brendan Smith and Jordan Sherratt 4 and 3.
While New Zealand fought hard with two wins and two other games going to the 17th and 18th holes in the afternoon singles, the Australians, chasing their fourth successive win in the biennial competition, were in extraordinary form.
Thomas Spearman-Burn was outstanding, finishing six-under par in beating experienced Australian Lester Peterson 2 and 1 at the bottom of the order.
Peterson, the team manager and former Eisenhower representative who is playing in next week's Canadian Amateur, stepped in for an ill Daniel Nesbit.
Daniel Pearce shot five birdies and an eagle in his round, but he could not quell Sherratt, who won 2 and 1.
Wallace found himself three down after Smith birdied five of his first seven holes but showed fighting qualities to win the match 2 up to keep the New Zealanders in the hunt.
Making his international debut, Scott Johnson lost 6 and 5 against Australian Daniel Beckerman, who birdied each of his first five holes.
Fox was 2 down with three holes to play against Matt Jager, the New Zealand amateur champion, but won the 16th and 17th holes with birdies.
However, Jager answered with an outstanding birdie on the final hole to sneak the key win to secure the match.
Peter Spearman-Burn was four-under the card but was no match for Matt Giles, who was eight-under when their match finished on the 15th hole.
"A loss is never what we aim at but there were plenty of encouraging signs," New Zealand coach Gregg Thorpe said.
"No one was over par out there today and they hit the ball well in the main tee to green.
"But the Australians had a day which was quite incredible. Giles and Beckerman, in particular, hit the ball close all day and made everything on the greens. We played well but they just outplayed us today."
Results:-
New Zealand 3 Australia 6 (NZ names first)
Foursomes: Daniel Pearce and Thomas Spearman-Burn lost to Daniel Beckerman and Lester Peterson 3 and 2, Scott Johnson and Peter Spearman-Burn lost to Matt Jager and Matt Giles 3 and 2, Ryan Fox and Ben Wallace bt Brendan Smith and Jordan Sherratt 4 and 3.
Singles: Thomas Spearman-Burn bt Peterson 3 and 2, Pearce lost to Sherratt 2 and 1, Wallace bt Smith 2 and 1, Johnson lost to Beckerman 6 and 5, Fox lost to Jager 1 down, Peter Spearman-Burn lost to Giles 4 and 3.
Canada 7 Japan 2.
NZPA WGT
