"The market was positioned for the big monetary policy statement, which was going to hike rates," said Westpac senior markets strategist Imre Speizer said.
"I think everyone has got to re-think what we will get tomorrow," he said.
"We will probably still get a hike, but the commentary might be different as a result of this event."
Economists were all forecasting a 25-basis-point hike to the official cash rate - taking it to 0.5 per cent.
That expectation was based on growing heat in the economy with annual inflation running at 3.3 per cent and unemployment having fallen to 4 per cent.
Infometrics' Olsen said he thought staying on hold was now the safest call.
"Much is conditional on this evening's announcement by the Prime Minister and Director General of Health, but if a period of alert level 4 is instituted, we think RBNZ might be best to hold off on any changes until a more appropriate time like the next Monetary Policy Review in six weeks," Olsen said.
"A short-sharp, lockdown would mean the New Zealand economy emerges with the same economic and inflationary pressures as we faced before the case announcement. A rise in the OCR is still needed, but given the circumstances, it might be best to wait a breath tomorrow".
ANZ senior markets strategist David Croy said the Kiwi had taken a knock on the news.
"It has seen the Kiwi get hit pretty hard, both against the US dollar and the Aussie.
"Really, it's just the market jumping to the view that, given the 100 per cent of recent cases at the border have been Delta cases, the market is assuming that there is a high chance of this case being Delta.
"We have already heard from the Ministry of Health that, if it is Delta, it means we are going to get a short, sharp lockdown.
"People are looking at the situation overseas and in Australia and drawing parallels to here in terms of how Covid could unfold and that clearly has reflected negatively in the exchange rate," he said.
The market had priced in a 25-basis-point rise in the official cash rate at tomorrow's announcement. Croy said he expected the Reserve Bank to go through with the hike. "But this clearly shifts the profile as to what might happen further down the track."
The local stock market also appeared to take a hit.
Trading up by about half a per cent when the news broke, it quickly reversed.
The NZX-50 ended the day down 0.67 per cent at 12,635.
