Does the sentence
It was arousing
have a sexual connotation?
Yes, it does. "Arouse" has been used in recent times to mean the stimulation of the sexual senses.
The only alternate meanings are "to cause to wake up" as in arousing from sleep. That's not used very often at all.
"Arouse" can also be used in this way:
This usage is also, not as often as the other sense of "sexually stimulating".
Thus, when you just state "IT was arousing" with no explanations, no context, no whatsoever, people are bound to understand you in the sexual sense. It's far more commonly used that way, that's why.