After leading the way with a stunning seven-under-par 64 on day one, the 34-year-old Bulloch could only produce a level par 71 at the Awana Kijal Golf Beach and Spa Resort while Thai-based McKenzie fired a solid 66 to tie for the lead on seven-under-par 135.
Zurie Harun continued to fly the Malaysian flag in the RM220,000 (approximately US$70,000) Asian Development Tour event, adding a battling 70 to his first round 68 to lie in third place, just three shots behind the leading duo.
Bangladeshi Shakhawat Sohel, who is aiming to emulate the success of countryman Siddikur on the elite Asian Tour, Australian Chris Hartas and Japanese Masaru Takahashi are a further stroke behind following rounds of 72, 69 and 70 respectively to lie on 139.
Bulloch, who turned professional earlier this year after giving up his job as a greenskeeper in Perth, conceded that holding the overnight lead proved to be a new experience.
"I couldn't get into any rhythm today [Tuesday] and I have to be honest, I was in an unusual position because I have never led in a tournament before," said the Australian.
"I didn't feel like I was putting pressure on myself because it is never easy to follow up a good round with another. I was just trying to shoot one shot at a time."
Starting from the 10th, he began strongly with a birdie on the 11th hole but failed to find his range with his iron play. He picked up only two more birdies on the 15th and ninth hole but dropped three shots along the way to open the door to his rivals.
"I made a couple of soft bogeys. I kind of stumbled a little bit,' said Bulloch.
"If someone told me I would be seven-under after two days, I would have taken that. It is going to be an exciting challenge. I've definitely improved since playing on the ADT as my scores will suggest that.
"I'm looking forward to the last two days. It will be exciting."
McKenzie moved into contention with an impressive five-birdie round while Zurie stayed in touch with the leaders with birdies on the first, ninth and 16th holes as he maintained his challenge for a first ADT victory.
The halfway cut was set at 147 with 52 players progressing into the final two rounds. The PGM Terengganu Masters is the fourth leg of the 2012 ADT season which will consists of a record 12 tournaments this season.