"Z" doesn't stand for "Zulu"
I don't have any more information than the Wikipedia article cited by the two existing answers, but I believe the interpretation that "Z" stands for "Zulu" is incorrect. UTC time is referred to as "Zulu time" because of the use of Z to identify it, not the other way around. The "Z" seems to have been used to mark the time zone as the "zero zone", in which case "Z" unsurprisingly stands for "zero" (assuming the following information from Wikipedia is accurate):
Around 1950, a letter suffix was added to the zone description, assigning Z to the zero zone, and A–M (except J) to the east and N–Y to the west (J may be assigned to local time in non-nautical applications — zones M and Y have the same clock time but differ by 24 hours: a full day). These can be vocalized using the NATO phonetic alphabet which pronounces the letter Z as Zulu, leading to the use of the term "Zulu Time" for Greenwich Mean Time, or UT1 from January 1, 1972 onward.