Peatlands dominated by the wire rush <em>Empodisma</em> spp. are widely distributed across Aotearoa New Zealand and hold considerable potential as archives for reconstructing past variability in the Southern Annular Mode, the dominant mode of Southern Hemisphere climate variability. However, the mechanistic links between climate, hydrology, and stable isotope signals in <em>Empodisma</em> cellulose remain incompletely understood. Here, using spatial (13 sites) and temporal (monthly, two sites) datasets, we examine the environmental controls on <em>Empodisma</em> cellulose &delta;¹³C and &delta;¹⁸O and their suitability for palaeoclimate reconstruction. We confirm strong spatial relationships between &delta;¹³C and temperature across the Aotearoa New Zealand latitudinal transect, consistent with carbon isotope discrimination theory under non-water-limited conditions and demonstrate that moisture variables exert no significant site-scale control, although a secondary within-site relationship with water-table depth is resolved. For &delta;¹⁸O, we show that internal root and shoot waters are systematically offset from root-associated water, with a species-dependent offset (<em>Empodisma robustum</em> &gt; <em>E. minus</em>), and that the mean of internal root and shoot water is the best-performing source for predicting root cellulose &delta;¹⁸O in a mechanistic model. Isotope mixing modelling reveals that root water is the dominant contributor to cellulose oxygen, but that this partitioning varies systematically with season and species. Initial downcore analysis at North and South Island sites records coherent multi-decadal trends in both proxies whose relative amplitudes follow the species-dependent partitioning predicted by the modern calibration. Once corrected for the atmospheric Suess effect, however, both proxies enrich over the industrial period in the direction that would be expected from rising CO₂ rather than from circulation change, indicating that pre-industrial records will be required to isolate a SAM signal. These results provide a mechanistic basis for interpreting <em>Empodisma</em> cellulose isotope records as proxies for past temperature and atmospheric circulation variability across the Southern Hemisphere mid-latitudes.