SYDNEY, May 1 (Reuters) - The New Zealand dollar extended its overnight declines on Wednesday while bond yields sagged as a soft reading on the local labour market reinforced bets rate cuts will come later this year.

Elsewhere, traders are awaiting the outcome from the U.S. Federal Reserve policy meeting later in the day, which has garnered all the attention given the recent drastic shift in global interest rate expectations as inflation proves hard to tame.

The kiwi dollar slipped 0.2% to $0.5880, having already tumbled 1.5% overnight to as low as $0.5888 as strong U.S. labour costs forced markets to further pare back easing bets from the Fed this year, although it still has support around $0.5860.

Markets are wagering there is a 27% probability that the Fed will not cut rates at all by the year end, compared with 18% a day before, according to CME FedWatch tool.

As a result the Australian dollar was nursing heavy losses at $0.6467, having plunged 1.4% overnight to breach its 200-day moving average of $0.6501.

Data from New Zealand showed that the country's jobless rate ticked higher to 4.3% in the first quarter, more than expected, while employment unexpectedly fell 0.2% from the quarter before, justifying rate cuts later in the year.

"With the labour market firmly in disinflationary territory, the RBNZ can be patient and wait for further progress in the inflation data before shifting its stance," said analysts at ANZ, referring to the Reserve Bank of New Zealand.

"We maintain our expectation that progress on the domestic disinflation front is consistent with OCR cuts in 2025."

Two-year swap rates fell as much as 9 basis points (bps) to 5.02% before bouncing back to $0.5070. Two-year bond yield dropped 5 bps to 4.945%.

Futures imply an easing of 38 basis points from the Reserve Bank of New Zealand this year, likely commencing from October.

As a result, the Australian dollar, which has been lifted by risk of another rise in local interest rates, climbed to another 10-year high on the kiwi to NZ$1.1016.

The RBNZ also on Wednesday said the country's financial system remains strong in the face of high interest rates.

(Reporting by Stella Qiu; Editing by Sonali Paul)