Interesting. I kind of like this.
Would Bakugou's explosions count as flames? Because if so, I can see Zuko dispelling them with ease.
Also, I'm not sure how close Bakugou would want to get. Season 2 Zuko should have his swords. And even with a minor AP advantage, Bakugou receiving an attack from one of those blades is not going to go well at all.
Honestly, I'm leaning a tad bit more towards inconclusive. Zuko doesn't just have the range advantage, but has range paired with AoE, meaning that Bakugou will have to move quite the distance to actually escape from Zuko's fire attacks. This makes getting in much more difficult. For shifting at the last moment isn't really effective against Zuko's AoE.
If Bakugou wins, which he likely does just barely, it's because of the last bit of Wolf's reasoning, which discusses Bakugou's intelligence. Sure, Bakugou gets embarrassed in CQC against Zuko. But he typically displays more intelligence when fighting. Not that Zuko is a fool, but fights in Avatar typically aren't as complex or forward thinking. Additionally, Bakugou has stun grenade, which will work as a wonderful fix up option, even mitigating Zuko's potential to stuff out his explosions either with his bare hands, or with fire of his own.
I think it's fairly hard for Bakugou, since it'll be tough for him to get in. And one slip up means that he could take a deadly attack from Zuko's blades. And Zuko is superior in CQC. But Bakugou thinks/improves in a battle far more than Zuko does, can amp his speed a bit with his explosions, and can mix up his attacks with stun grenade to throw Zuko off guard.
I'll give it to Bakugou for these reasons. Mid-high diff.