Abstract Interannual extremes in New Zealand rainfall and their modulation by modes of Southern Hemisphere climate variability are examined in observations and a coupled climate model. North Island extreme dry (wet) years are characterized by locally increased (reduced) sea level pressure (SLP), cold (warm) sea surface temperature (SST) anomalies in the southern Tasman Sea and to the north of the island, and coinciding reduced (enhanced) evaporation upstream of the mean southwesterly airflow. During extreme dry (wet) years in South Island precipitation, an enhanced (reduced) meridional SLP gradient occurs, with circumpolar strengthened (weakened) subpolar westerlies and an easterly (westerly) anomaly in zonal wind in the subtropics. As a result, via Ekman transport, anomalously cold (warm) SST appears under the subpolar westerlies, while anomalies of the opposite sign occur farther north. The phase and magnitude of the resulting SST and evaporation anomalies cannot account for the rainfall extremes over the South Island, suggesting a purely atmospheric mode of variability as the driving factor, in this case the Southern Annular Mode (SAM). New Zealand rainfall variability is predominantly modulated by two Southern Hemisphere climate modes, namely, the El Niño–Southern Oscillation (ENSO) and the SAM, with a latitudinal gradation in influence of the respective phenomena, and a notable interaction with orographic features. While this heterogeneity is apparent both latitudinally and as a result of orographic effects, climate modes can force local rainfall anomalies with considerable variations across both islands. North Island precipitation is for the most part regulated by both local air–sea heat fluxes and circulation changes associated with the tropical ENSO mode. In contrast, for the South Island the influence of the large-scale general atmospheric circulation dominates, especially via the strength and position of the subpolar westerlies, which are modulated by the extratropical SAM.