I'm an 18-year-old male. Some weeks ago, I and a female friend of mine went on a one-week cycling trip. We're almost exactly the same age, she's an old childhood friend, we've known each other practically forever, sometimes we saw each other naked when we were children, occasionally we bathed togehter back then. She's more or less like a sister to me.
We haven't ever been sexually interested in or felt sexually attracted to each other (that is, at least I haven't to her).
On our cycling trip, we slept together in one tent, in our underwear, and because of the heat, we slept outside our sleeping bags.
One morning, when I woke up I had a morning wood, which isn't something really surprising. However, she was also awake and watching it. I was so embarrassed I was unable to speak. When she noticed that I'm awake, too, she didn't say anything, but got fully dressed quickly and left the tent, straight-faced. I waited for my morning wood to cease, then I got dressed myself and followed her. We did not talk about it.
We've received the same sex ed, which didn't specifically deal with morning woods, but when you google that topic, you'll easily find that it is a normal physiological mechanism essentially unrelated to sexual arousal. I don't know though whether she has googled it, and I don't know how well girls in general are informed about that matter.
I'm a virgin and I'm quite positive that she is, too.
Our trip continued like the days before, we kept talking to each other normally, in fact I don't think her behaviour towards me has changed at all, so our relationship does not seem to have suffered damage and I'm not concerned about that episode anymore.
How could I have eased the situation in a non-awkward manner?